Income Tax Breaks could mean more $$$ in your pocket!

With the government tax forum drawing to a close last week, one significant proposal on income tax seems to have gained some traction.

While not committing to a specific timeframe, Treasure Wayne Swan explained that government is in the planning stages of raising the tax free threshold to $21,000 – a move that would also abolish the low income tax offset and go a long way towards simplifying income tax in Australia.

As part of its Carbon Tax compensation package, the government already plans to increase the tax free threshold to $18,201 in 2012-2013 and then $19,401 in 2013-2014. It is expected that in the years following, the threshold would then incrementally increase to the target of $21,000.

What does this mean for me?

To put it simply, instead of paying income tax once you earn $6,000 per year, you won’t pay tax until you earn $18,201 (and in later years $21,000).

This will allow everyday Australians to retain more cash in hand.

For example, if you earn $18,000 per year, currently your first $6,000 is tax free and you are taxed on the next $12,000. Then at the end of the financial year you lodge your tax return to claim this tax back under the low income tax offset.

Under the proposed changes, your whole $18,000 is tax free, leaving you with more money in your pocket each week!

How many people will be affected?

If these changes are implemented, the initial rise in the threshold in 2012-2013 would mean about 1,000,000 extra people wouldn’t be required to pay income tax. Then in 2013-2014 a further 100,000 would be excluded – and that many again once the eventual $21,000 threshold is reached.