Q I am confused about tax rates with the coverage I am reading leading up to the Budget. I thought the top rate of Income tax was 45 per cent but there are regular comments that our top rate is closer to 50 per cent…which is true?
A Income received by individuals is taxed at progressive tax rates. That means that the rate of income tax you pay increases progressively according to specified Income Tax bands. The Income Tax band that applies to your income is referred to as your Marginal tax rate.
The following rates apply for income received by individuals between 1 July 2015 and 30 June 2016. Income up to $18,200 is tax free. Tax on income from $18,201 to $37,000 is 19%. Tax on income from $37,001 to $80,000 is 32.5% + $3,572 (for the previous band). Tax on income from $80,001 to $180,000 is 37% + $17,547 (for the previous bands). Income above $180,001 is 47% + $54,547 (for the previous bands).
In addition to the above income tax, a 2% Medicare Levy applies for individuals with income above $26,121 ($44,076 for couples). A lower Medicare Levy rate applies for individuals with income greater than $20,897 ($35,262 for couples) but less than $26,121 ($44,076 for couples). Below this no Medicare Levy is payable.
If you earn more than $90,000 as a single person ($180,000 as a couple) and you do not have Private Health Insurance, you will also pay a Medicare Levy Surcharge. At $90,000 income ($180,000 as a couple), the surcharge rate is 1% rising to 1.5% if your income exceeds $140,000 ($280,000 as a couple)
From 1 July 2014, the Government imposed an additional “levy” referred to as the “Temporary Budget repair levy” of 2% which applied to individuals with income above $180,000. This levy is planned to cease on 30 June 2017. Stay tuned for an update on Budget night…
So there is little wonder that you are confused. If you earn income greater than $180,000 your Marginal tax rate will be an aggregate of 49% made up of 45% Income tax, 2% Medicare Levy and 2% Temporary Budget Repair Levy. If you earn greater than $180,000 and don’t have Private Health Insurance, add in the Medicare Levy Surcharge of 1.5% for an aggregate of 50.5% Marginal tax rate.
It is important that you have a clear understanding of what you are likely to pay. Ensure you are claiming all Tax deductions you are entitled to. Compare the cost of Private Health Cove versus the impact of the Medicare Levy Surcharge. In all cases, if you are unsure, seek advice.