Good News for Savers

The Government’s 2010 Budget was announced earlier this year and there was some good news for savers. In future individuals will be eligible for a tax discount of 50 per cent on interest earned from savings products. The discount will apply on up to $1,000 of interest income from 1 July 2011. This is good news for most Australians as it means you will be paying less tax on any interest you earn.

Which products are likely to included?

The savings discount applies to deposits held with an authorized deposit-taking institutions. Interest on the following products are eligible: Online savings accounts; term deposits; cash management accounts; online and standard savings accounts; deeming accounts; transaction accounts.

How much tax will this save me?

The tax discount will apply on any interest earned up to $1,000. Assuming you have a savings product that earns 6% interest p.a. (which is achievable in today’s market) you would need to have a deposit of over $16,000 to earn more than $1,000 in interest in a year. Any interest earned over $1,000 will be taxed at your marginal rate, while the interest below $1,000 will be taxed at half your marginal rate.

Example*:

 



 

Before 1 July 2011

After 1 July 2011

Initial Deposit Balance

$16,000.00

$16,000.00

Returns in Year 1

$986.85

$986.85

Tax on Returns

$296.05

$148.00

Ending Balance after Tax

$16,690.80

$16,838.85

Difference

$148.05




*Example assumes a return of 6% p.a. compounded monthly and a marginal tax rate of 30%.                                      

 

Compare savings accounts rates now at infochoice.com.au  

 

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