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Understanding tax offsets

Anyone who wants to have a good idea of their likely tax bill needs to factor in tax offsets. Four – the low-income tax offset, mature-age worker tax offset and the pensioner and senior Australians offsets – have changed for 2012-13.

Offsets, or rebates, are much more valuable than equivalent tax deductions since the latter merely reduce taxable income whereas offsets deliver a direct cut in tax paid.

The first of the above offsets is less valuable than it was since a lift in the tax-free threshold from $6000 to $18,200 has been accompanied by the low income tax offset being cut from $1500 to $445. But the cut-off income for getting the full offset has risen from $30,000 to $37,000.

Even after allowing for the lift in the marginal tax rate from 15% to 19% on $18,200-$37,000 incomes, low-income earners will be better off.

The mature-age worker offset, which delivers the maximum $500 offset to all workers aged 55-plus earning between $10,000 and $53,000, has now been closed to everyone born before July 1957.

The third and fourth offsets are combined as the senior and pensioner tax offset but will deliver essentially the same benefits. In 2011-12 the singles maximum senior’s offset was $2230 while for married couples it was $1602 each. You have to be 65 at June 30 in the current tax year.

Written by Peter Freeman

Peter Freeman is a former managing editor of The Australian Financial Review. He runs his own self-managed super fund.

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