With none of the changes to capital gains tax or negative gearing that many had been anticipating, this year’s federal budget was light on changes to personal income tax reform. Some of the key changes include:
- Personal income tax reductions
- Higher education – HELP debt repayments reform
- Simplification of means testing for students and other payment recipients
Personal Income tax reductions
From 1 July 2016, the 32.5% personal income tax threshold will increase from $80,000 to $87,000.
This measure will reduce the marginal rate of tax on income between $80,000 and $87,000 from 37% to 32.5%. For example, a taxpayer earning $87,000 will save $315 per year as a result.
This will ensure the average full-time wage earner will not move into the second highest tax bracket in the next three years.
Higher Education – HELP debt repayment reform
Although no immediate changes were announced, the Government is considering a number of higher education reforms to commence in 2018. The guiding principles are to provide genuine choice of higher education opportunities, ensure equity of access, enable institutions to deliver world class education and provide a system that is affordable.
Options to be considered relating to the repayment of HELP debts include:
- Changes to repayment thresholds and rates, for example by commencing repayment of HELP debts at a lower threshold income than the current minimum ($54,126 for 2015-16 and $54,870 for 2016-17);
- change the indexation of HELP repayment thresholds form average weekly earnings to CPI;
- a renewable lifetime limit on HELP loans;
- restrictions on the availability of HELP loans or Commonwealth subsidies to those who have left the workforce permanently;
- discontinue the HECS-HELP benefit;
- introduce a household income test for HELP repayments;
- recovery of debts from deceased estates.
In regards to HELP loan fees, the Government will consider a range of levels:
- removing loan fees altogether;
- a modest loan fee (eg 5%); or
- a loan fee of 20% (as currently applies to VET FEE-HELP).
Simplification of means testing for students and other payment recipients
Means testing arrangements for students and other payment recipients will be simplified from 1 January 2017. The changes include aligning the:
- assets test for all Youth Allowance and Austudy recipients, including those partnered to a Social Security or Veterans’ Affairs income support recipient;
- means test rules used to assess interests in trusts and private companies for all student payment recipients, including independent Youth Allowance and ABSTUDY recipients;
- social security benefit and ABSTUDY income test treatment of gift payments from immediate family members with existing pension rules;
- Family Tax Benefit (FTB) income test and youth Parental Income Test, and authorising the use of FTB income details for the youth Parental Income Test low tax contributions (non-excessive concessional contributions) including super guarantee, salary sacrifice and personal concessional contributions.