Amendments to the Employment Termination Payment (ETP) rules

The Government has announced that it will curtail the ETP tax concession so that it is only available in situations where there is genuine hardship for the employee (eg. in circumstances related to genuine redundancy, invalidity, compensation and employment-related disputes).

The announced measures will mean that any payment made to an employee that results in an employee's taxable income exceeding $180,000 will now be taxed at marginal rates.  This will cover "golden handshakes" and other significant elements of a termination package.

Currently, these types of payments are the subject of the ETP tax concession, which effectively reduces the tax rate on those payments to 15% (where employees are over their preservation age) and 30% (for those employees under their preservation age).

The measures will apply from 1 July 2012.

Changes to tax rates for non-residents

The Government has announced changes to the marginal tax rate thresholds for non-resident individuals.

This measure is intended to better align the tax rates payable by non-residents with those of residents.

From 1 July 2012 the first two marginal tax rate thresholds for non-residents will be merged into a single threshold. The marginal rate for this threshold will align with the second marginal rates for residents (32.5%) and will apply to all taxable income below $80,000.  That marginal rate will rise to 33% from 1 July 2015.

Decision not to proceed with 50% tax discount for interest income

The Government has decided not to proceed with the previously announced measure to only include 50% of interest income in an individual's assessable income (up to $1,000 per year) which was intended to commence from 1 July 2013.

This measure was announced as part of the Henry Review in 2010 and was intended to assist Australian financial institutions obtain greater funding by providing Australian deposit holders with a tax concession for interest up to $1,000. This is likely to be met with criticism from Australian banks and other deposit taking institutions.

Decision not to proceed with standard $500 tax deduction

The Government has also decided not to proceed with the standard $500 tax deduction also announced as part of the Henry Review in May 2010.

This was intended to commence from 1 July 2013 to provide taxpayers with a compliance saving by providing all taxpayers with a standard $500 tax deduction (as part of a move towards short-form pre-completed tax returns).