Work incentives with income tax reform

All Australian taxpayers will share in new personal tax cuts worth $36.7 billion. These are the largest tax cuts since The New Tax System and build on the $21.7 billion in personal tax cuts provided in the last budget.

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Continued structural tax reform

This budget significanly restructures the personal income tax system to increase disposable incomes, enhance incentives for participation and to improve Australia's international competitiveness.

From 1 July 2006:

  • The 30 per cent threshold will be raised to $25,001
  • The 42 per cent marginal tax rate will be cut to 40 per cent and the threshold will be raised to $75,001
  • The 47 per cent marginal tax rate will be cut to 45 per cent and the threshold will be raised to $150,001
  • The Low Income Tax Offset (LITO) will be increased to $600 per year and phase out from $25,000, up from $21,600.

Those eligible for the full LITO will not pay tax until their annual income exceeds $10,000 per year.

Senior Australians who are eligible for the Senior Australians Tax Offset (SATO) will now pay no tax on their annual income up to $24,867 for singles and up to $41,360 for couples.

The Fringe Benefits Tax rate will be cut to 46.5 per cent.

Table: New tax scale

New tax scale

Graph: Tax savings from 1 July 2006 compared with tax payable now

Tax savings from 1 July 2006 compared with tax payable now

In percentage terms, the greatest tax cuts are provided to low income earners.

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7 2006‑07 Budget Overview