You may have noticed that your take home pay increase slightly last month.
This is because of the increase in the tax free threshold. It is nice to receive more money but are you better off?
Below is an article I wrote when this change was first announced.
What does it really mean when the government increases the tax free threshold from $6,000 to 18,000? Are we better off?
Tax Free threshold
The annual tax-free threshold for most Australians is $6,000. This means that, unless your circumstances are different from the majority, your first $6,000 of income is not taxed. Therefore, by claiming the threshold, you reduce the amount of tax that is withheld from your pay during the year.
When your taxable income exceeds your tax-free threshold you pay tax on the excess.
Low income offset
As well as there being no tax on the first $6,000 (the tax-free threshold) there is also, to provide a helping hand to taxpayers who earn under a certain amount each year, a low income tax offset.
Effectively, a low income resident taxpayer's tax-free threshold is $16,000. The offset reduces by four cents in every dollar that income exceeds $30,000, and cuts out at $67,500.
The recently announced tax cuts from the government will mean as at the 01/07/2012 the tax free threshold will increase to $18,000 and the low income rebate will be cancelled.
If you earn less than $16,000 you will be in the same position, if you earn between $30,000 to $67,500 you will lose the benefit of the low income rebate, but you will be better off.
If you earn $37,000 you will save around $600 in tax and if you earn $67,000 around $1800 in tax.
It also means that people below $16,000 income will not need to lodge tax returns unless they have paid tax and want the refund.
(End of Article)
This was one of the measures put in place to help offset the carbon tax. It will also assist the government in a reduction in the number of people who will need to lodge tax returns... which I expect will be quite a cost saving to the government.
You should note however that this should also reduce the amount of your tax refund for the 2013 tax year.
So if you are like most people and relay on your tax refund to assist with bill payments make sure that you budget that extra money in your pay each week to compensate for a lower tax refund.