The Government plans to provide a 50% tax discount on up to $1,000 of interest earned by individuals, including interest earned on deposits held in authorised deposit taking institutions, bonds, debentures and annuities. Currently there are relatively higher levels of taxation applying to interest income, compared to other forms of investment income. The discount will be available for interest income earned directly as well as indirectly, such as via a trust or managed investment scheme, and is expected to benefit around 5.7 million taxpayers in 2011-12.
There will be a flow-on effect for taxpayers claiming the discount
for interest income as they will have a reduced adjusted taxable income.
The Government will consult during 2010-11 on details concerning the
operation of the discount, including in relation to the scope of the
discount and the mechanism for applying the discount to interest earned
indirectly by individuals.
Comment:
To generate $1,000 of interest a taxpayer would need savings of $16,667
assuming a 6% interest rate. As there is no preservation or holding
period requirement apparently included in this measure, the 50% savings
discount provides an alternative shorter-term savings mechanism,
particularly for those affected by super contributions caps. However,
over the longer term the taxation concessions applying to super do
provide greater scope for increased savings.