Policies > Family tax and payments

The Australian income tax and transfer system

Overarching position

Families with children should receive significant financial help from the government depending on the parents annual income. All

Definitions

Income tax is where the government takes our money as we earn money. The system is progressive as you progress in earning more income; you pay a higher percentage tax on the income you earn.

Transfers are where the government gives us money. Typical government transfers are Family Tax Benefit A and B.

It is important to understand that income tax is based on the individual’s income but transfer payments to families are based on the whole families’ income.

The problem

The problem with our current system of tax and transfer system is that it leads to excessive high marginal rates of taxation when people leave welfare to go into the workforce.

A typical example:

A family wants more A mother wants to change from part time to full time work which will push her into the 30% tax bracket. This means she pays 30cents of every additional dollar earned to the government plus the Medicare levy or 1.5 cents in every dollar.

As she earns more, she pays 31.5 c in every dollar in tax and she also looses 30c in every dollar of welfare benefits she previously received. So she is effectively loosing 61.5 c in every dollar she earns. In addition to this, high effective marginal tax on income, the mother has to pay for childcare for each child costing hundreds of dollars each week. It is no surprise that many women don’t think working more is even worth it as they will only be a few dollars a week better off by working than not working!

Something has to change to improve the income tax and transfer system. Currently we are cutting off too much welfare too fast as it is strictly means tested.

The Australian People’s Party propose four changes to encourage more people to work

1. Make the transfer payment to be more or less the same rate for anyone on welfare Pension, disabled or unemployed, lest they try to have a injury and get on the more generous benefit.

2. Have family tax benefit B at 150 per fortnight (if youngest child is <5 ) or 100 pfn is (y <18). Up until the families income of reaches $250 000.

3. Have family tax benefit A at full rate ($6000 per child) if family taxable income is less than 45 000. For every $10,000 it goes up you loose 10c in every dollar of benefits. So a family on $145000 receives no family tax benefit A.

4. So the maximum rate of effective marginal tax is between 22.5% and 47.5%, depending on the level of income they are starting from.

Practical example 1: Barry and Brenda have a young family with both parents working. The children are aged 5 and 7 years old. Barry earns $50 000 as a labourer and Brenda $37 000 as a part time accountant. She wants to go full time and earn more money and increase her income by $10 000 pa.

Brenda will pay 31.5% income tax on additional income of $10 000. This is $3150. The family will loose 10% of the full amount of Family tax Benefit A. $6000pa is the full amount, then $600 is 10% of that full amount. Family tax benefit B is unchanged

Cost is $3150 + $600 = $3750. Annual income increase is $10 000. Net income is $6250.

Effective marginal tax rate is 37.5% (taking into account of loss of welfare payments).

Practical example 2: Sarah’s income went from $ 80,000 to $90,000 and her family income grew from 135,000 to 145,000.

Income tax increase is 41.5% x $10 000 = 4150. Loss of welfare benefit is $600. Total loss is $4 750. Effective marginal rate of tax is 47.5%

At $145 000 family income they no longer receive welfare payments Family tax benefit A. But will continue to receive family tax benefit B. Their effective marginal rate of tax is the relevant income tax rate of 41.5% up until they reach a personal income of $180 000 when it will be 47.5%.

Example 3: Jane, earning 20 000 pa and her partner Ben of 60 000 pa. If she wants to work more and get $30 000 then she will pay 15% income tax and loose $600 in welfare payments as the family income is higher than the $45 000 threshold of the highest payment for family tax benefit A.

Summary: Family Income increases by $10 000. Cost to family is $1650 income tax and $600 in loss of Family tax benefit A. They keep all of family tax benefit B. Total cost is $2250. Effective marginal tax rate is 22.5%

Current rates of welfare payments are below:

Transfer payments per fortnight:

Single person AusStudy $377

Single person disability support pension $701

Single pension $644

Newstart allowance $462

The marginal rates of tax are now

0% 0 – 6000

15% 6001 – 37000

30% 37001 – 80000

38% 80001 – 180000

45% 180001+

Family tax benefit A

Maximum payment amounts

For each child	Per fortnight	Per year
Under 13 years	$156.94	$4,803.40
13–15 years	$204.12	$6,033.45
16–17 years	$50.12	$2,018.45
18–24 years	$67.34	$2,467.40
In an approved care organisation
Up to 24 years	$50.12	$1,306.70

Note: Approved care organisations provide residential care for young people - e.g. young people who are homeless, refugees or have a disability.

Note: As the Family Tax Benefit Part A Supplement^[1] is paid after the end of the financial year, the amount is not included in the fortnightly figures. Annual figures include the $711.75 per child supplement for 2009/10. Approved care organisations are not entitled to the Family Tax Benefit Part A Supplement.

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Base rate of Family Tax Benefit Part A

For each child	Per fortnight	Per year
Under 18 years	$50.12	$2,018.45
18–24 years	$67.34	$2,467.40

An income test^[3] is used to work out how much Family Tax Benefit Part A you can get.

Income test

For Family Tax Benefit Part A, if your family's actual annual family income^[2] for this financial year is $44,165 or less, your payment will not be affected by the income test.

If your actual annual family income is more than $44,165 for this financial year, your payment will reduce by 20 cents for each dollar above $44,165 until your payment reaches the base rate of Family Tax Benefit Part A.

Your Family Tax Benefit Part A will stay at that rate until your actual annual family income reaches $94,316 a year (plus $3,796 for each Family Tax Benefit child after the first). Family Tax Benefit Part A will reduce by 30 cents for every dollar over that amount until your payment reaches nil.

If you get more than the base rate of Family Tax Benefit A, a maintenance income test^[3] may also apply.

Actual annual family income limit beyond which only base rate is paid ($pa)

No. of children 0–12 years	No. of children 13–15 years
No. of children 0–12 years	Nil	1	2	3
Nil		$64,240	$84,315	$104,390
1	$58,090	$78,165	$98,240	$118,315
2	$72,015	$92,090	$112,165	$132,240
3	$85,940	$106,015	$126,090	$146,165

Note: Income limit will be higher if you are eligible for Rent Assistance.

Actual annual family income limit at which Family Tax Benefit stops ($pa). These figures include the supplement.

No. of children 0–17 years	No. of children 18–24 years
No. of children 0–17 years	Nil	1	2	3
Nil		$102,541	$114,562	$127,519
1	$101,045	$113,065	$126,023	$138,980
2	$111,569	$124,526	$137,484	$150,441
3	$123,030*	$135,987*	$148,945*	$161,902*

Note:

* Income limit is higher than stated for 2 or 3 children aged 13–15.

Family tax benefit part B

This income test for Family Tax Benefit Part B is effective from 20 March 2010.

Family Tax Benefit (FTB) Part B is limited to families (single parent or couple) where the primary earner has an adjusted taxable income of $150,000 per year or less.

Single parent families whose adjusted taxable income is more than $150,000 will no longer be eligible for FTB Part B. Single parent families with income at or below this limit will continue to receive maximum rate FTB Part B.

2 parent families where the primary earner has an adjusted taxable income of more than $150,000 will no longer be eligible for FTB Part B, regardless of the income of the lower income earner.

Where the primary earner's income is at or below this limit, the payment of FTB Part B will be assessed on the basis of the secondary earner's income. Secondary earners can earn up to $4,672 each year before it affects the rate of FTB Part B.

Payments are reduced by 20 cents for each dollar of income earned over $4,672.

If you are the secondary earner and your partner earns $150,000 or less, you can still get some FTB Part B if your income is below:

$23,817 a year if your youngest child is under 5 years of age, or
$18,542 a year if your youngest child is between 5–18 years of age.

Note: As of 1 July 2009, changes to the definition of income^[1] mean that your assessable income for Centrelink and the Family Assistance Office will also include:

reportable superannuation contributions, and
total net losses from rental property or investment income.

· Maximum rate of Family Tax Benefit B

Age of youngest child	Each fortnight	Each year
Under 5 years	$133.56	$3,828.85*
5–15 years (or 16–18 years if a full-time student)	$93.10	$2,774*

· Note: Payment per year figures include the Family Tax Benefit Part B supplement ($346.75 per family for the 2009/10 financial year) but the fortnightly figures do not. The supplement can only be paid after the end of the financial year.

· Note: *Each year figures include the Family Tax Benefit Part B supplement.

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