The Government announced that they were not making any changes to the current personal income tax rates other than to add the previously announced flood levy for one year commencing 1 July 2011.

The flood levy was announced after the Queensland and Victoria floods earlier this year and is expected to raise $1.8 billion to assist with the reconstruction efforts in those states. The levy was introduced into Parliament on 10 February 2011 and passed both houses of Parliament in March.

The levy is to be calculated as follows:

The following table outlines the resultant tax rates applicable to resident taxpayers for the 2011-12 financial year when compared to current personal income tax rates (excluding Medicare):

* Also applies post 1 July for exempt taxpayers, i.e. those that have received an Australian Government Disaster Recovery Payment.

Low Income Tax Offset removed from unearned income of minors

In another measure announced prior to the release of the budget, the Government will remove the ability of children under the age of 18 to access the low income tax offset (“LITO”). This offset has previously reduced the tax payable by minors on their unearned income such as dividends, interest, rent, etc. This measure is specifically targeted at discouraging distributions of income to children from discretionary trusts.

In the 2010-11 year minors have been able to receive up to $3,333 of income without being subject to income tax due to the operation of the LITO. With the introduction of this measure effective from 1 July 2011, minors will only be able to receive $416 of unearned income before they commence paying tax.

Other changes to Personal Taxation Rebates and Offsets

The Government also announced changes effective from 1 July 2011 that will provide additional cash to low income earners through an increase in the amount of the Low Income Tax Offset that is delivered via decreased tax withheld from salary rather than through a rebate on their annual income tax return. A taxpayer with an annual income of $30,000 will receive an additional $300 during the year through lower income tax instalments being deducted from their salary payments.

As part of the Government’s measures to increase the participation rate of the workforce, the Government announced that commencing 1 July 2011 it would phase out the Dependent Spouse Tax Offset beginning with offsets paid to those with partners under the age of 40.  Importantly, dependent spouses with children are not impacted by this phase out as they receive Family Tax Benefit B rather than the Dependant Spouse Tax Offset.

No more deductions against Government assistance payments

From 1 July 2011, an individual taxpayer will no longer be able to claim work-related expenses as deductions where income is derived only in the form of Government assistance payments.

Further to their press release of 17 December 2010, the Government will amend the tax law to prevent deductions being claimed against all government assistance payments.

From this date, this proposed legislative amendment therefore negates the effect of the 2010 High Court decision of Commissioner of Taxation v Anstis where it was held that a student could claim a deduction for study expenses even though the student only received Youth Allowance while studying full-time.

However, the Commissioner will still allow eligible taxpayers to receive an automatic deduction of $550 or a higher amount if it can be substantiated in respect of the 2007 to 2011 income tax years.

Medicare levy threshold increases

From 1 July 2010, the Medicare levy low income thresholds will be retrospectively increased to $18,839 for individuals, $31,789 for families, $2,919 for each dependent child or student and $30,439 for single pensioners below Age Pension age

Reduction in HECS discounts

From 1 January 2012, there will be a reduction of benefits for taxpayers involved in the Higher Education Contribution Scheme (HECS) in that if students elect to pay their student contribution up-front, they will only receive a 10% discount (instead of the current 20% discount).  If students do not pay their student contributions up-front, they will accrue the outstanding debt and only receive a 5% bonus (instead of the current 10% bonus) on any payments of $500 or more towards the debt.

Pacific Seasonal Worker Pilot Scheme

From 1 July 2011,the marginal tax rate of non-resident individuals participating in the Pacific Seasonal Worker Pilot Scheme who earns less than $37,001 per year will be reduced to 15% (currently the rate is 29%).

Workers qualifying for this rate will not have access to the tax free threshold or low income tax offset.