How to make your tax cuts count as Budget opens up opportunity

You may have heard about the tax cut contained in this year’s Budget, but it will be delivered a little differently this year - opening up new possibilities for savvy savers.

Tax cuts unveiled in last week’s Budget give millions of Australians the chance to make that money multiply in value.

The nature of the tax cut — in the form of an offset at tax time rather than being drip-fed through regular wages — means 10.1 million workers will each receive up to $1080 via a tax refund from July.

In a Budget that lacked big-ticket initiatives for savers, investors and super fund members, the tax cuts could soon deliver a working couple up to $2160 and unlock several strategies to make it count.

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Workers will benefit from tax cuts this year, no matter which party wins the election.

Dixon Advisory managing director Nerida Cole said people often used tax refunds to improve their financial position by repaying debts, investing or saving the money, or building a buffer in their mortgage.

“The average refund is about $2500 and if you get $1000 on top of that it’s a sizeable amount that can make a big difference,” she said.

The full $1080 of tax relief will go to 4.5 million individuals who earn taxable income between $48,000 and $90,000. It gradually reduces to zero for people with income above $126,000, while lower-income workers also receive less.

Labor has already promised to match the Coalition tax cuts, and increase the size of them for workers earning less than $48,000 a year.

Ms Cole said some people could use the tax cut for incentives such as the superannuation co-contribution, which pumps up to $500 of government money into their super, or spouse contributions that deliver tax offsets up to $540.

“You can double up on incentives from the government to use the system to your advantage,” she said. “You are multiplying the effect.”

H & R Block director of tax communications Mark Chapman said the tax cut was “much more tangible” rather than simply saving $10 or $20 a week through wages.

“It’s a substantial amount that people can do something with,” he said.

“From the ATO’s perspective it’s really great because more people will lodge their tax returns and will do it sooner.

“There’s also a group of people who don’t lodge at all, and the ATO has to go to great lengths to try to force them to lodge. If people are given a financial bounty they’re more likely to lodge in the first place.”

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H & R Block director of tax communications Mark Chapman said the tax cut was “much more tangible” rather than simply saving $10 or $20 a week through wages. Picture: Supplied

The Budget left superannuation largely unchanged, apart from some small tweaks to give people aged 65 and 66 more flexibility to make contributions.

The Financial Services Council welcomed the pause in widespread super tinkering, saying it would increase consumer confidence and encourage people to be engaged with their super.

MLC head of advice and professionalism Kieran McIlwaine said overall the Budget provided some positive measures, including the July tax cuts and big tax cuts proposed for high income earners in future years.

He also welcomed the extra opportunities for older people to boost their retirement savings.

“For many, superannuation remains a tax effective investment vehicle, so these additional opportunities to contribute larger amounts over a greater period of time to super could be extremely valuable,” he said.

@keanemoney

Originally published as How to make your tax cuts count as Budget opens up opportunity