New rates from 2012

The money to be raised by the carbon tax was earmarked by the Government for a variety of uses including changes to the personal income tax which will come into effect from 1 July 2012:

  • the tax free threshold for individuals will be increased from $6,000 to $18,200;
  • the low income tax offset will be reduced;
  • the thresholds for the Medicare levy will be increased; and
  • the two bottom tax brackets [currently 15% and 30%] will be increased to 19% and 32.5%. The thresholds for these rates and the remaining rates are unaffected.

Withdrawn measures

However, the Government announced in the Budget a decision to withdraw some concessions previously announced.

The Government is not proceeding with the 2010-11 Budget measure to provide individuals with a 50% tax discount for interest income, which was due to commence on 1 July 2013. The Government decided not to proceed with this measure due to concern from industry and stakeholders regarding the complexity involved in calculating the discount and its overall effectiveness.

Similarly, the Government is not proceeding with the 2010-11 Budget measure to introduce a standard deduction for individuals as an alternative to itemising tax deductions for work-related expenses and costs of managing tax affairs, which was due to commence on 1 July 2013. The Government says that it is pursuing other simplification measures.

Living-away-from-home allowances and housing fringe benefits

In releasing the 2011-12 Mid-Year Economic and Fiscal Outlook on 29 November 2011, the Treasurer announced that the Government intended to amend the Living Away from Home ("LAFH") allowance and housing fringe benefit rules with effect from 1 July 2012.

In essence, these changes proposed that:

  • employees receiving a LAFH allowance would be required to substantiate their actual expenditure on accommodation and food above a statutory amount;
  • temporary residents would be required to maintain a home for their own use in Australia and to be living away from that home for work, in order to access concessional tax treatment; and
  • the taxation treatment of LAFH allowances would be administered under the income tax system rather than under the fringe benefits tax legislation – that is, the LAFH allowance would be treated as assessable income to the employee with deductions only being allowed for substantiated accommodation and food expenses.

In the Budget, the Government proposes to limit further the availability of tax concessions for LAFH allowances and housing fringe benefits. This is to be done by –

  • requiring all recipients to maintain a home in Australia and to be living away from that home for work, in order to access concessional tax treatment (ie, this requirement will now apply to residents as well as temporary residents); and
  • imposing a one year time limit on the period that concessional tax treatment can be claimed (apart from fly-in fly-out arrangements).

These changes are not to affect the tax treatment of travel and meal allowances provided to employees who have to travel from their usual place of work for short periods (generally up to 21 days).

The Budget changes are to apply from 1 July 2012 for arrangements entered into after 8 May 2012, and from 1 July 2014 for existing arrangements.

There is to be consultation before releasing the legislation that is to enact these changes.

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