The government has introduced changes to the private health insurance rebate and the Medicare levy surcharge. From 1 July 2012, the private health insurance rebate and the Medicare levy surcharge will be income tested against three new income tier thresholds.
The private health insurance rebate and Medicare levy surcharge will be income tested against the income tier thresholds in the below table. Your rebate percentage entitlement will be reduced as your income tier rises.
| |
Unchanged |
Tier 1 |
Tier 2 |
Tier 3 |
| Singles |
$84,000 or less |
$84,001-97,000 |
$97,001-130,000 |
$130,001 or more |
| Families |
$168,000 or less |
$168,001-194,000 |
$194,001-260,000 |
$260,001 or more |
| Rebate |
| Aged under 65 |
30% |
20% |
10% |
0% |
| Aged 65-69 |
35% |
25% |
15% |
0% |
| Aged 70 or over |
40% |
30% |
20% |
0% |
| Medicare levy surcharge |
| Rate |
0.0% |
1.0% |
1.25% |
1.5% |
From 1 July 2011, the low-income tax offset no longer reduces tax payable on unearned income for children (under 18 years of age).Examples of unearned income include the following:
- destribution from discretionary trusts
- interest
- dividends
- rent
- royalties
The low-income tax offset will continue to reduce tax payable on earned income of children that includes:
- employment income
- taxable pensions or payments from Centerlink
- income from their own business or partnership in which the child was an active partner
- a compensation, super or pension fund benefit
- income from a deceased person’s estate
- income from property transferred to a child as a result of another’s death or family breakdown
- income from investment of amounts referred to above.
These changes will not impact the income of children who are orphans, disabled, or engaged in full-time occupation at the end of the income year.
As a result of these changes, children must lodge a tax return if their taxable income exceeds $416 (previously $3,334).
From 2012-13, the entrepreneur’s tax offset can no longer be claimed.
The entrepreneur’s tax offset may still be applied to assessments for applicable income years up to and including 2011-12.
The entrepreneurs tax offset (ETO) is a tax offset equal to 25% of the income tax payable on your business income if you have an aggregated turnover of $50,000 or less.
If your aggregated turnover is more than $50,000, the ETO is phased out so that the tax offset stops once your turnover reaches $75,000.
From 2009-10 if you are an individual you must meet an additional income test. Broadly, the new income test applies if you are a small business sole trader, a partner in small business partnership, or a beneficiary of a trust that is a small business. The new income test reduces the ETO entitlement for:
- individuals who are single with income for ETO purposes over $70,000
- individuals with a family whose income for ETO purposes is over $120,000.
The ETO can only reduce the amount of tax you must pay each year. That is, we cannot:
- refund any unused tax offset
- defer it to reduce your tax in a later income year, or
- transfer it to another taxpayer to reduce their tax.
From 2012-13:
- the small business instant asset write-off threshold has been increased from $1,000 to $6,500
- the long-life small business pool and the general small business pool have been consolidated into a single pool to be written off at one rate
- small businesses can claim an accelerated initial deduction for motor vehicles acquired in 2012-13 and subsequent years.
These amendments only apply to small businesses that have an aggregated turnover of less than $2 million. Aggregated turnover includes the annual turnover of the small business and the annual turnovers of any connected or affiliated businesses.
If a consolidated tax entity’s franking account is in deficit at the end of an income year, the entity will be liable for franking deficit tax (FDT). This situation may arise for consolidated tax entities that receive refunds of tax paid in earlier income periods due to retrospective changes made to existing law by the Tax Laws Amendment (2010 Measures No. 1) Act 2010.
An FDT liability will give rise to a tax offset which can be used to reduce any current and future year income tax liabilities.
The tax offset is not refundable, but any excess will be taken into account in calculating the amount of the tax offset in future income years.
If the FDT liability attributable to certain franking debits is greater than 10% of the total franking credits that arose in the franking account, the amount that can be claimed as an FDT offset is reduced. This is called the FDT offset reduction.
The Commissioner can use his discretion to allow an entity to offset the full amount of its FDT liability where the deficit arose due to circumstances outside the entity’s control. In the absence of any manipulation of the imputation system, the Commissioner would generally consider the impact of the retrospective amendments giving rise to later refunds of income tax to be a circumstance outside the entity’s control.
