Federal Budget 2011 – 2012 - Individual Taxation

This looks at the taxation implications for individuals.

Low income tax offset for minors

A common tax minimisation strategy used by families will be reduced from July 2011.  The government will remove the ability of minors (children under 18) to access the low income tax offset (LITO) to reduce tax payable on the income distributed to them most often by family trusts.

Families will no longer be able to allocate up to $3333 in tax free income to each child.  This will be reduced to $416.

Income earned by minors for work will still be eligible for the full benefit of LITO.

Personal Tax Offset, Thresholds and Payments

The government announced the following annual threshold and offset amendments:

• An increase in the Medicare Levy low-income threshold to $18,839 for individuals and $31,789 for couples.  $2,919 can be added for each dependent child or student.  The thresholds will also move for those pensioners below age pension age to $30,439.
• Normally tax payers receive 50 per cent of their low-income tax offset (LITO) at the end of the year via their tax return.  This will decrease to 30 per cent, which will mean an extra $300 during the year for someone with an annual income of $30,000.
• From 1 July 2011, the dependant spouse tax offset will no longer be available where the dependant spouse was born on or after 1 July 1971 (40 years of age or less).  This will result in the tax offset being phased out over time.