Tax offsets

7.18 Tax offsets directly reduce the amount of tax a person must pay.[29] They are subtracted from the tax calculated on a person’s taxable income.[30] Tax offsets effectively increase the returns from work and arguably reduce disincentives to keep working.[31] In the Issues Paper, the ALRC asked whether tax offsets might be improved to encourage mature age workforce participation, and whether their removal—as recommended by the Tax Review—would create disincentives for mature age workforce participation.[32]

7.19 A number of tax offsets are available for mature age persons, depending on their particular circumstances.[33] These tax offsets have been subject to changes in 2012, as described below.

  • The Senior Australians Pensioner Tax Offset was introduced on 1 July 2012. Previously, this was comprised of two separate offsets: the Pensioner Tax Offset and the Senior Australians Tax Offset.[34]

  • In the 2012–13 Budget, the Australian Government announced it would phase out the Mature Age Worker Tax Offset for taxpayers born on or after 1 July 1957.[35]

  • The Low Income Tax Offset has been reduced as the Australian Government has more than tripled the tax-free threshold.[36]

7.20 Most stakeholders commenting on this issue did not consider tax offsets an effective incentive for mature age workforce participation. National Seniors Australia commented that

The complexity and consequent lack of transparency of the taxation system inhibit the effectiveness of such offsets as incentives. An incentive that is not understood as such is not an incentive.[37]

7.21 Olderworkers stated that amounts are so small they would have little if any impact on decisions about work.[38] ACCI pointed out that the effect of the tax offset is experienced ‘in an ex-post manner—well after the event and beyond the time for implementing remedies or adjustments from a tax planning perspective’.[39]

7.22 In relation to the changes to the tax offsets and the low-income threshold, the National Welfare Rights Network commented that these are well-targeted and should ‘simplify the interaction that some older people have with the taxation system’. It argued that tax should be based on income rather than age, and that removing mature age persons from the taxation system is ‘unfair on younger taxpayers and is financially irresponsible’—particularly given the ageing Australian population.[40]

7.23 The changes to tax offsets, and the raising of the tax-free threshold, are consistent with the Tax Review recommendation that tax offsets should be removed as separate components of the system and incorporated into the personal income tax rates scale.[41]

[29] The term ‘tax offset’ is a generic term used in the Income Tax Assessment Act 1997 (Cth) to describe what in Income Tax Assessment Act 1936 (Cth) are called ‘rebates’ and ‘credits’.

[30]Income Tax Assessment Act 1997 (Cth) s 4-10. In contrast, a deduction is subtracted from assessable income in calculating the taxable income on which tax is payable.

[31] See: The Treasury, Australia’s Future Tax System: Retirement Income Consultation Paper (2008), 37.

[32] Issues Paper, Question 8.

[33] For further information about these offsets, see the Issues Paper at [63]–[66].

[34]Clean Energy (Tax Laws Amendments) Act 2011 (Cth) sch 3.

[35] Australian Government, Budget 2012–13: Budget Paper No. 2 (2012) <> at 3 September 2012, Revenue Measures. The Treasury has released exposure draft legislation and explanatory material for public comment in relation to the phase-out. Submissions closed on 17 August 2012: ‘Changes to Phase Out the Mature Age Worker Tax Offset’, The Treasury, Website (2012) <> at 3 September 2012.

[36]Clean Energy (Tax Laws Amendments) Act 2011 (Cth)sch 1; Clean Energy (Income Tax Rates Amendments) Act 2011 (Cth) sch 1.

[37] National Seniors Australia, Submission 27.

[38] Olderworkers, Submission 22.

[39] Australian Chamber of Commerce and Industry, Submission 44.

[40] National Welfare Rights Network, Submission 50.

[41] The Treasury, Australia’s Future Tax System: Final Report (2010), rec 5.