Tax on low Income Earners

Single parents will, once their youngest child turns 8, start to pay more tax, how will this happen I hear you ask?

While the youngest child is under 8 a single parent will receive Parenting Payment Single. When the child turns 8 the parent will stop receiving Parenting Payment Single and start receiving the Newstart Allowance.

How does receiving Newstart effect your tax differently to Parenting Payment Single? The answer is that the parenting payment is treated as a pension and the tax payer receives a larger tax offset.

Newstart entitles you to a Beneficiary Tax Offset of 15% of the amounts of Newstart payments greater than $6,000, if your Newstart payment is $7,000 you will get an offset of $150.  If Newstart is $5,000 the offset is nil.

Parenting Payment Single entitles you to the Pensioner Tax offset of $2,240 if your taxable income is below $20,934. So what this means is if you receive $7,000 0r $6,000 0r even $20 of Parenting Payment Single you will receive and offset of $2,240.

I will do a quick example for the difference in tax that you would pay once your child has turned 8.  I am working on a total income of $20,000, ($8,000 earned as  Centrelink money and $12,000 earned from wages). These figures do not reflect Centrlink’s payments or income tests.

If your child is older than 8 years and you receive the Newstart allowance then the tax payable would be $600.

If your child is younger than 8 years  and you receive Parenting Payment Single, for the 2009 year your tax payable would be $nil.

If you earn $1 of Newstart Allowance your tax free threshold is $14,000 including the low income tax offset where as 1$ of Parenting Payment Single will give you a tax free threshold of $25,300 including the low income rebate.