The financial services sector is set to benefit, at least in part, from the Federal Budget initiative to cut by 50 per cent the tax applying to the first $1,000 of interest earned on savings.
The initiative is aimed squarely at older Australians, particularly those attracted to financial products such as term deposits.
The Treasurer, Wayne Swan, described the measure as one recognising that bank deposits are a preferred savings vehicle for many Australian, particularly older savers who prefer holding their non-superannuation savings in interest-bearing products.
“Right now, there is considerable variation in the taxation treatment of alternative savings vehicles,” he said. “While interest is taxed at the saver’s marginal rate without any discount, capital gains on assets held longer than a year receive a 50 per cent discount.
”We know this particularly disadvantages lower-wealth and older savers who are more likely to hold their non-superannuation savings in interest-bearing products,” he said.
“So from 1 July 2011 Australians will be able to obtain a 50 per cent tax discount for the first $1,000 of interest they earn, including interest earned on deposits held in banks, building societies and credit unions, and on bonds, debentures and annuity products,” the Treasurer said.
The Government’s move received a qualified welcome from the Institute of Chartered Accountants in Australia which described them, plus simplified individual tax returns, as representing the start of a serious tax reform agenda for the country.
“Today’s announcement of a standard $500 tax deduction alongside a simplified personal tax return process, will deliver average compliance cost savings of around $300 a year for over 5 million Australians who currently visit a tax agent every year,” the Institute’s Tax Counsel, Yasser El-Ansary said.
However he claimed the jury was out, as to whether or not, a $500 deduction will be enough to entice most taxpayers to tick the box and accept the offer.
