Savers are in for an even bigger tax break than recommended by the Henry Tax Review and taxpayers will no longer need shoeboxes in which to file receipts.
In two tax revolutions recommended by the Henry Review and adopted by the Rudd government most Australians earning interest from banks will pay just 15 per cent on their earnings with high earners paying 18.5 per cent and they'll be an automatic deduction for personal taxpayers whether or not they collect receipts.
The Henry Review recommended that 4 out of every 10 dollars earned in interest be tax-free. Instead from July next year the budget will make a more generous 5 out of every 10 dollars earned tax-free, effectively having the tax rate on savings.
Already-scheduled tax changes mean from July Australians earning $37,000 to $80,000 will face a marginal rate of 30 per cent and Australians earning up to $180,000 $37 per cent. The half-tax arrangement for savings will result in effective rates on interest of 15 and 18.5 per cent.
The low rates will apply to the first $1,000 of interest earned, meaning that at current interest rates savings of up to $16,500 will be half taxed...
In a signal he would use the move to pressure banks to restrain mortgage rates Treasurer Swan said it would give banks, building societies and credit unions greater access to stable deposit funding, cutting their need to raise money on overseas markets.
Personal taxpayers will be moved one-step closer to automatic "tick and flick" pre-filled tax returns with the introduction of a standard deduction of $500 in lieu of work-related expenses from 2012, climbing to $1000 in 2013.
While the deduction is well below the average of around $2000 claimed per taxpayer at present, some 6.4 million taxpayers are expected to be better off claiming the automatic deduction.
Taxpayers that want to claim more will still be able to by presenting receipts.
Mr Swan told parliament that in the Henry Review's consultations around the country it found that many taxpayers simply wanted "more time with each other" and less completing tax forms.
"This will mean less time with the Tax Pack, more time with loved ones, and for 6.4 million Australians it also means a bigger tax refund, he said.
Creating a standard deduction is the first step toward toward the automatic "one click" tax return recommended by the Henry Review in which taxpayers merely verify a return already prepared by the Tax Office and accept the refund it has calculated.
Around 5.7 million taxpayers are expected to benefit from the tax break on bank accounts, with many expected to put more of their savings into banks as a result.
The discount will cost $950 million in its first three years.
It will bring bank interest into line with capital gains which are already half-taxes cutting the attractiveness of tax strategies such as negative gearing.
The Henry Review found there was a worldwide trend to lightly taxing earnings from savings as they were far more mobile than earnings from labour.
Bank interest was penalised compared to other forms of saving, facing an effective after-inflation tax rate of more than 60 per cent.
The discount will also apply to interest earned from bonds, debentures and annuity products. In a sign that it might be extended further the Treasurer has promised to consult with industry about "boundary issues". The Henry Review suggested extending it to funeral policies and scholarship plans, which is said were in some ways similar to bank accounts.
MONEY IN THE BANK
. Tax rates on bank interest halved
. 15% rate for mid-income earners
. 18.5% rate for high earners
. Automatic $500 tax deduction from 2012
. Automatic $1000 deduction from 2013
Published in today's SMH and Age
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