I Can Do That
* Includes the effect of the tax-free threshold and the low income tax offset.
The strategy To work out whether I'll be compensated for the carbon tax.
It's so confusing! How does the compensation work? It's being delivered in two forms - through tax cuts and welfare payments. To get a tax cut, you need to earn less than $80,000 a year, while welfare recipients will automatically get an increase to their payments. The tax cuts start from July 1 next year while most welfare recipients will receive a lump sum advance payment in May/June next year and higher regular payments from July 1.
How much will I get? Let's look at the tax cuts first. The government isn't so much cutting the tax rates as tweaking the lower end of the tax scales to deliver the biggest tax cuts to lower earners and chicken feed to anyone earning more than $80,000. The current tax-free threshold of $6000 (the amount you can earn before paying tax) will be increased to $18,200 from July 1 next year and $19,401 from July 1, 2015. But here's the rub. The two bottom tax rates are being increased. The current 15 per cent rate will be lifted to 19 per cent from 2013 and the 30 per cent rate will rise to 32.5 per cent from 2013 and 33 per cent from July 1, 2015.
The government is also cutting the low-income tax offset from $1500 to $445 and reducing the withdrawal rate (the rate at which you lose the offset once your income exceeds $30,000) from 4 per cent to 1.5 per cent. From July 1 next year, the income at which the offset starts to phase out will also be lifted from $30,000 to $37,000.
Agh! What does that mean in bottom line terms? It means that if you're eligible for the offset, you can earn up to $20,542 before paying tax from 2013 and $20,979 from 2015. At the moment this figure is $16,000. Your income will then be taxed at 19 per cent, though you'll still get some low-income tax offset until your income hits $30,000. You're looking at a $600 tax cut if you earn $20,000, $586 if you earn $25,000 ($503 in 2013 plus a further $83 in 2015) and $386 if you earn between $30,000 and $65,000 ($303 next year plus $83 in 2015). At $70,000 the total tax cuts reduce to $316; at $75,000 they total $166; if you earn $80,000 or more you get $16 ($3 next year plus another $13 in 2015).
OK, I think I get that. Do I get extra welfare payments as well? There will be a 1.7 per cent increase in pensions, allowances and family benefits. So if you're eligible for the age or a veteran's pension, family tax benefit, or some form of income support, you will receive a lump-sum advance next year then increased payments. The amount of the lump sum depends on what form of benefit you get. Families will receive an advance payment equal to a full year's benefits and receive increased regular payments from July next year. For example, the government says a family with a child aged 13-15 will receive a lump sum of $109.50 next June and a 1.7 per cent increase after that.
Pensioners and most other allowees will receive an advance payment equivalent to nine months of benefits and receive their increased payments from March 2013.
The government says the full-pension lump sum advance will be $250 for singles and $190 for each member of a couple. Retirees who hold a Commonwealth Seniors Health Card will benefit from the same assistance as pensioners, including the lump sum payment. Students on Youth Allowance will receive their increased payments in January 2014.
There will also be a new $300 annual Low Income Supplement for lower earners and a Single Income Family Supplement of up to $300 for single-income families with income between $68,000 and $150,000 who don't get the benefit of two tax cuts.
You can get more information, including an estimate of your own compensation, at cleanenergyfuture.gov.au.