{"id":294,"date":"2026-05-21T07:30:50","date_gmt":"2026-05-21T07:30:50","guid":{"rendered":"https:\/\/taxreformaustralia.com.au\/?post_type=book_chapters&p=294"},"modified":"2026-08-13T04:44:30","modified_gmt":"2026-08-13T04:44:30","slug":"chapter-16","status":"publish","type":"book_chapters","link":"https:\/\/taxreformaustralia.com.au\/?book_chapters=chapter-16","title":{"rendered":"Chapter 16 – The Case For A Flat Rate Personal Income Tax Achieving Progression Using Specific Tax Rebates and Other Provisions"},"content":{"rendered":"\n

This year\u2019s budget changes included provisions setting a minimum tax rate of 30% on specified CGT and trust income. The government chose this rate to match the company tax rate and the basic rate of tax payable by many taxpayers. There would absolutely no need to do this if tax reforms addressed the two fundamental weaknesses in our<\/a> personal income tax design.<\/p>\n\n\n\n

First, using the individual as the Tax Unit allows family members to split their income between them to reduce the impact of the progression in the rate scale. Most wage and salary earners do not have the ability to share their pre-tax earnings with other family members though some structures including discretionary trusts and family companies provide some flexibility to do so. <\/p>\n\n\n\n

Investors can share property and other investment income with other taxpaying units much more easily aided by the absence of gift taxes and the ability to provide interest free loans to related parties. Individuals can also opt to undertake their investment activities in other structures including companies and trusts and either defer receipt of the income or arrange for its distribution to another taxpayers.<\/p>\n\n\n\n

This flexibility explains why over the years governments have introduced restrictions on the transfer of pre-tax trust and non-wage income to minor children. Investors have also, especially since the 1987 introduction of the imputation credit company tax system been able to postpone the impact of personal tax rates above the company tax rate by reinvesting after-tax profits in the company structure.<\/p>\n\n\n\n

Second the greater value to taxpayers with higher marginal tax rates of the tax-free area and the lower rates in the tax scale reduces the progression in the rate scale. For example, the $18,200 tax-free area is worth $8,554 to a top rate taxpayer and only $5,824 to a 32% marginal rate taxpayer (with annual income between $45,000 and $135,000). Similarly, the 18% tax rate applying up to $45,000 increases the tax benefit available to a top rate payer to $16,326 annually compared with $9,576 for a 32% marginal rate payer.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Annual Income $<\/strong><\/td>Tax Current $<\/strong><\/td>Proposed Tax Scale $<\/strong><\/td>Additional Tax %<\/strong><\/td>Less Rebate $9,576<\/strong><\/td>% Change<\/strong><\/td>Less Rebate $16,326<\/strong><\/td>% Change<\/strong><\/td><\/tr>
18,200<\/td>0<\/td>5824<\/td>          n.a.<\/td>0<\/td>-100<\/td>0<\/td>-100<\/td><\/tr>
45,000<\/td>4824<\/td>14400<\/td>198.5<\/td>0<\/td>-100<\/td>0<\/td>-100<\/td><\/tr>
55,000<\/td>8024<\/td>17600<\/td>119.3<\/td>8,024<\/td>0<\/td>1,274<\/td>-84.1<\/td><\/tr>
65,000<\/td>11224<\/td>20800<\/td>85.3<\/td>11,224<\/td>0<\/td>4,564<\/td>-59.3<\/td><\/tr>
75,000<\/td>14424<\/td>24000<\/td>66.4<\/td>14,424<\/td>0<\/td>7,674<\/td>-46.8<\/td><\/tr>
105,000<\/td>24024<\/td>33600<\/td>39.9<\/td>24,024<\/td>0<\/td>17,274<\/td>-28.1<\/td><\/tr>
135,000<\/td>33624<\/td>43200<\/td>28.5<\/td>33,624<\/td>0<\/td>26,874<\/td>-20.1<\/td><\/tr>
150,000<\/td>39474<\/td>48000<\/td>21.6<\/td>38,424<\/td>-2.7<\/td>31,674<\/td>-19.8<\/td><\/tr>
170,000<\/td>47274<\/td>56000<\/td>18.5<\/td>46,424<\/td>-1.8<\/td>39,674<\/td>-16.1<\/td><\/tr>
190,000<\/td>55074<\/td>64000<\/td>16.2<\/td>54,424<\/td>-1.2<\/td>47,674<\/td>-13.4<\/td><\/tr>
220,000<\/td>69174<\/td>76000<\/td>9.9<\/td>66,424<\/td>-4<\/td>59,674<\/td>-13.7<\/td><\/tr>
250,000<\/td>83274<\/td>88000<\/td>5.6<\/td>78,424<\/td>-5.8<\/td>71,674<\/td>-13.9<\/td><\/tr>
280,000<\/td>97374<\/td>102100<\/td>4.9<\/td>92,524<\/td>-5<\/td>85,774<\/td>-11.9<\/td><\/tr>
310,000<\/td>111474<\/td>116200<\/td>4.2<\/td>106,624<\/td>-4.4<\/td>99,874<\/td>-10.4<\/td><\/tr>
340,000<\/td>125574<\/td>130300<\/td>3.8<\/td>120,724<\/td>-3.8<\/td>113,974<\/td>-9.2<\/td><\/tr>
370,000<\/td>139674<\/td>144400<\/td>3.4<\/td>134,824<\/td>-3.5<\/td>128,074<\/td>-8.3<\/td><\/tr>
400,000<\/td>153774<\/td>158500<\/td>3.1<\/td>148,924<\/td>-3.1<\/td>142,174<\/td>-7.5<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
Scale  <\/strong><\/td>Rate<\/td><\/tr>
First $150,000<\/td>32%<\/td><\/tr>
Next $100,000<\/td>40%<\/td><\/tr>
Balance<\/td>47%<\/td><\/tr>
Balance <\/td>47%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

<\/p>\n\n\n\n

Switching to a flat rate, say 32% rate, system up to an income of $150,000 (11% higher than the current $135,000 bracket) and a 40% tax rate for the next $100,000 of income up to an annual income of $250,000 with the top marginal rate of 47% applying thereafter would negate these benefits for highest marginal rate taxpayers increasing their average tax rate substantially. Offering a non-refundable annual credit of $9,576 would ensure no taxpayer eligible for the credit paid more tax up to an annual income of $135,000. Further Increasing the annual rebate to $16,326 would ensure that no taxpayer eligible for the rebate would pay more tax with the percentage reduction falling as income rises. The following Table illustrates the change in tax liabilities under both options for the size of the rebate.<\/p>\n\n\n\n

With this structure, achieving progression in distribution of the tax burden requires variation in the size of the available flat rebate according to the needs of the individual taxpayers. For example, offering the $9,576 rebate to eligible taxpayers with assets (including superannuation and equity in the family home) of more than $1 million and the larger $16,326 rebate to other eligible taxpayers would result in a major reduction in the tax burden on these less well-off taxpayers and reduce the overall budgetary costs of the tax restructure.<\/p>\n\n\n\n

Denying eligibility to any rebate for certain categories of taxpayers, for example, dependent children, student and other temporary visa holders and taxpayers with total assets in excess of $2 million (individual), $3million (couple) would greatly reduce the budgetary cost of the change and facilitate a larger reduction in personal income tax burdens on lower income taxpayers and those wanting to build wealth without facing the higher marginal tax rates now applying.<\/p>\n\n\n\n

Using non-refundable rebates also offers other flexibility in design of the tax structure. Particularly in the case of working couples where one partner has less flexibility to earn income than the other, offering the ability to share the $9,576 rebates, giving a total value of $19,152 to a couple is an option worth considering.<\/p>\n\n\n\n

The key takeaway point from this Chapter is that the use of rebates of equal value to all eligible taxpayers can be a more effective way of achieving progression than often proposed variations in the rate scale. A later Chapter considers integration of the tax and social security systems and the concessional taxation of superannuation pensions.<\/p>\n\n\n\n

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This year\u2019s budget changes included provisions setting a minimum tax rate of 30% on specified CGT and trust income. The government chose this rate to match the company tax rate and the basic rate of tax payable by many taxpayers. There would absolutely no need to do this if tax reforms addressed the two fundamental … Continue reading “Chapter 16 – The Case For A Flat Rate Personal Income Tax Achieving Progression Using Specific Tax Rebates and Other Provisions”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"template":"","class_list":["post-294","book_chapters","type-book_chapters","status-publish","hentry"],"acf":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/taxreformaustralia.com.au\/index.php?rest_route=\/wp\/v2\/book_chapters\/294","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/taxreformaustralia.com.au\/index.php?rest_route=\/wp\/v2\/book_chapters"}],"about":[{"href":"https:\/\/taxreformaustralia.com.au\/index.php?rest_route=\/wp\/v2\/types\/book_chapters"}],"author":[{"embeddable":true,"href":"https:\/\/taxreformaustralia.com.au\/index.php?rest_route=\/wp\/v2\/users\/1"}],"wp:attachment":[{"href":"https:\/\/taxreformaustralia.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=294"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}