The carbon tax has now become law with effect from 1st July 2012. Here we take a look at the changes to the personal tax system that will be made and how that will impact you.
Executive Summary
1. According to Government estimates, households will see cost increases of $9-90 per week which includes increasing electricity and gas charges.
2. There are two ways that households will receive compensation for the additional costs which include increases in pensions, allowances and family payments in addition to tax cuts.
Specifically these measures are:
- Pensioners and self funded retirees will get up to $338 extra per year if they are single and up to $510 per yer for couples combined. There will be a cash payment made to these people automatically in May/June 2012 which represents a "bring forward" payment.
- Families receiving Family Tax Benefit Part A will get up to an extra $110 per child.
- Eligible Families will get up to extra $69 in Family Tax Benefit B.
- Allowance recipients (eg New Start Allowance) will get up to $218 extra per year for singles, $234 per year for single parents and $390 per year for couples combined.
- On top of this, taxpayers with annual income of under $80,000 will all get a tax cut, with most receving at least $300 per year.
Tax Rate Changes In Detail
The new tax thresholds from 1st July 2012 will be as follows:
| Taxable income | Tax on this income |
| 0 - $18,200 | Nil |
| $18,201 - $37,000 | 19c for each $1 over $18,200 |
| $37,001 - $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $80,001 - $180,000 | $17,547 plus 37c for each $1 over $80,000 |
| $180,001 and over | $54,547 plus 45c for each $1 over $180,000 |
The tax free threshold will rise from $6,000 to $18,200, and the maximum value of the Low-income tax offset (LITO) will be reduced from $1,500 to $445. This means that the effective tax free threshold for ordinary Australians considering the LITO is now $20,542.
The first marginal tax rate will be increased from 15 per cent to 19 per cent, and will apply to that part of taxable income that exceeds $18,200 but does not exceed $37,000.
The second marginal tax rate will be increased from 30 per cent to 32.5 per cent, and will apply to that part of taxable income that exceeds $37,000 but does not exceed $80,000.
All of this results in tax cuts for working Australians earning up to $80,000 per year of around $300.
For retirees over the age of 65, who are entitled to the Seniors or Pensioner Tax Offset, the effective tax free threshold now rises to approx $32,200pa for singles and approx$29,000pa for each member of a couple living together ($58,000pa combined)
Food for thought: Australia's initial carbon tax is set at $23 per tonne. China is considering a carbon tax of $1-50 per tonne and according to a recent Financial Review article European businesses currently pay between $8-70 - $12-60 per tonne.
Note: Advice contained in this articler is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at March 2012.