The Government will introduce a standardised deduction for workers filing their income tax returns in 2012, with some 6.4 million Australians expected to receive a tax benefit as part of the scheme, writes Patrick Stafford.
The Government will introduce a standardised deduction for workers filing their income tax returns in 2012, with some 6.4 million Australians expected to receive a tax benefit as part of the scheme.
The program is one of the measures recommended by the recent Henry Review, and is the first of several initiatives the Government said it will introduce in order to simplify the current tax return system.
However, the accounting industry will almost certainly baulk at the introduction of such a scheme, as critics have said smaller tax agents will suffer as more taxpayers choose to file by themselves online.
From 1 July, 2012, the Government will provide an optional standard deduction of $500 instead of having taxpayers list work-related expenses individually. This deduction will increase to $1,000 from 1 July, 2013.
The Government has said about 6.4 million taxpayers will be an average of $192 better off after the scheme is introduced. However, taxpayers will also be able to choose to itemise their deductions instead of taking the standard deduction if they choose.
The program is set to cost the Government $92.7 million in its first year of operation, and will grow to cost $608.4 million by 2013-14.
Out of those taxpayers set to benefit from the scheme, around 66% will have taxable incomes lower than $50,000 in 2012-13.
Treasurer Wayne Swan said tonight the decision to introduce a deduction scheme was based on a recommendation in the Henry Review, which stated the Government should introduce more pre-filing initiatives to reduce the amount of time required to file a return.
“We have decided to provide taxpayers the choice of a standard deduction instead of the hassle of shoeboxes full of receipts and the costs of professional assistance,” he said.
The Government also said it will continue introducing more measures for pre-filing tax returns. It has previously said the amount of Australians who need a tax agent to complete their returns is too high, and reform is necessary.
“This is an important step towards a ‘tick and flick’ system of pre-filled tax returns that will make life easier for working families at tax time and provide a bit of extra assistance to household budgets, particularly for low and middle income families,” assistant treasurer Nick Sherry said.
The Government also confirmed it will go ahead with its third consecutive round of tax cuts. Swan said in a statement these cuts are expected to give a boost to employment, generating about 85,000 jobs in the medium term.
A taxpayer earning about $50,000 per year will earn an extra $33.65 on average, with an annual benefit of about $1,750. Those earning $100,000, will receive a tax benefit of about $41.35 per week, or $2,150 in a year.
For higher income earners, those earning $150,000 per year will receive an extra $70.19 per week, or an annual benefit of $3,650.
A number of other measures will also be introduced, including:
Increasing the Low Income Tax Offset from $1,350 to $1,500, effectively creating a tax-free threshold of $16,000.
Increasing the 30% threshold from $35,000 to $37,000.
Lowering the 38% marginal tax rate to 37%
Increase the amount senior Australians eligible for the Senior Australian Tax Offset can earn before they pay income tax.