There are no specific income tax incentives applicable to an individual working in Australia. However, there are a number of personal tax offsets that may have the effect of reducing tax payable or, in some instances, the cost of health insurance or child care.
Personal offsets generally take the form of tax rebates or tax offsets, which are, in most cases, available only to residents.
Dependant tax offset
The dependant invalid and carer tax offset is only available to taxpayers who maintain a dependant who is unable to work due to invalidity or care obligations. For the year ended 30 June 2018, the invalid and carer tax offset is capped at AUD 2,666 and is subject to abatement for the 'adjusted taxable income' of the spouse, cutting out if this exceeds AUD 10,946. This offset is only available where the taxpayer's adjusted taxable income is no more than AUD 100,000.
Other personal tax offsets
Other tax offsets include offsets for those residing in isolated areas, a Low Income Tax Offset of up to AUD 445, which phases out once taxable income reaches AUD 66,667, a Seniors and Pensioners Tax Offset, and rebates for certain lump sums received in arrears.
In the 2018/19 Federal Budget, the government announced and enacted a new Low and Middle Income Tax Offset (which will apply in addition to the Low Income Tax Offset) that applies to resident individuals with taxable income of up to AUD 125,333 (for the 2018/19 to 2021/22 income years). This will result in a combined offset of up to AUD 975 per year for some taxpayers from 1 July 2018.
The net medical expense tax offset is only available for those individuals who incur net medical expenses relating to disability aids, attendant care, or aged care.
The maximum offset applicable for the year ended 30 June 2018 is calculated at the rate of 20% of the excess of net qualifying medical expenses over AUD 2,333 for individuals with adjusted taxable income of AUD 90,000 or less for singles or AUD 180,000 or less for couples or families (plus AUD 1,500 for each dependent child after the first). For those individuals with adjusted taxable income that exceeds those thresholds, the net medical expenses threshold increases to AUD 5,504 and the rate of the offset reduces to 10%. The offset is being phased out and will no longer be available from 1 July 2019.
Health insurance premiums
A tax offset (or a rebate provided directly against the premium) is available for the cost of private health insurance premiums (which covers hospital treatment), provided certain eligibility criteria are met.
The applicable tax offset is income tested and depends on the age of the individual. For the period from 1 April 2018 through 31 March 2019, there is no entitlement where adjusted taxable income exceeds AUD 140,000 for singles or AUD 280,000 for families, regardless of the individual's age. For an individual under the age of 65, the offset for the period from 1 April 2018 through 31 March 2019 ranges from:
- 8.471% where adjusted taxable income is between AUD 105,001 and AUD 140,000 for singles or between AUD 210,001 and AUD 280,000 for families.
- 16.943% where adjusted taxable income is between AUD 90,001 and AUD 105,000 for singles or between AUD 180,001 and AUD 210,000 for families.
- 25.415% where adjusted taxable income is AUD 90,000 or less for singles or AUD 180,000 or less for families.
For individuals aged 65 years or over, higher offset entitlements are available and can be as high as 33.887% for those aged 70 years and over with adjusted taxable income of AUD 90,000 or less for singles or AUD 180,000 or less for families.
The offset entitlements are indexed annually.
Child care benefit
A child care benefit is available to assist eligible families with the cost of child care - long day care, family day care, occasional care, outside school hours care, vacation care and registered care. The child care benefit is not administered through the tax system.
Spouse contribution tax offset
From 1 July 2017, if a resident spouse's assessable income (and reportable fringe benefits and employer superannuation contributions) does not exceed AUD 40,000, a resident may make a maximum rebatable contribution of AUD 3,000 for the spouse (including a de facto spouse) to a complying superannuation fund or retirement savings account (RSA) and obtain a spouse contributions tax offset. The maximum offset is AUD 540 (the tax offset is the amount of the contribution x 18%) and applies if the spouse's assessable income (including reportable fringe benefits and employer superannuation contributions) is not more than AUD 37,000.
Innovation investment offset
Investors in an Australian Early Stage Innovation Company (ESIC) (broadly, a company that is at an early stage of establishment to develop new or significantly improved innovations with the purpose of commercialisation to generate an economic return) are provided with a non-refundable carryforward tax offset equal to 20% of the amount paid for the investment, subject to a cap.
Australian resident shareholders (other than corporates) who have invested in certain Australian resident companies that undertake greenfield minerals exploration in Australia may receive 'exploration credits' that entitle them to a refundable tax offset equal to the amount of the credit.
In broad terms, an exploration credit is a conversion of the company's tax loss attributed to the company's exploration or prospecting expenditure into a distributable tax benefit in the form of the offset available to the investor.
The Junior Minerals Exploration Incentive (JMEI) (which replaced the Exploration Development Incentive [EDI], which applied for the last time for the year ended 30 June 2018) applies in relation to newly issued shares in eligible exploration companies made in the 2017/18, 2018/19, 2019/20, and 2020/21 income years.
Small business income tax offset
A small business income tax offset applies to individuals who run small businesses (businesses with an aggregate annual turnover of less than AUD 5 million (previously AUD 2 million for the 2015/16 income year) or who pay income tax on a share of the income of a small business.
For the 2016/17 to 2023/24 income years, the offset is limited to a maximum of AUD 1,000 and equates to 8% of the income tax payable on the portion of an individual’s income that is small business income.