Tax issues for women

Posted by Jenni Colwill on 30 January 2009 | 0 Comments

In looking at the tax issues raised by Professor Apps in the paper she wrote for NFAW and talking to Michelle Wingett who is very knowledgeable about tax implications for single mothers, it is clear that women are vulnerable because of Australia's system of family taxation. Higher tax rates can often end up applying to the lowest income earners.

Michelle (of the National Council of Single Mothers and their Children and Solomums Australia for Family Equity) has put together the following example to illustrate the points made in Professor Apps' paper 'Women and Retirement Incomes'.

In Australia, you are only taxed after you earn $6,000 pa. The highest marginal tax rate is 45% (plus the Medicare Levy).

Currently income between $6000 and $33,000 is taxed at a rate of 15 cents in the dollar. Low income earners are also eligible for a tax rebate of up to $1200 p.a.

A person earning up to $30,000 p.a. pays $2400 in personal income tax - ($24000 x 0.15 - $1200). Their effective average tax rate is 8%.

While personal income tax is on individual's incomes, Family Tax Benefit Part A and the Medicare Levy exemptions are taken from family income.

Additionally, Family Tax Benefit Part B is taken from the income of the second earner - usually a woman.

This means that if, in a family, the secondary earner is earning $30,000, she can lose up to $8600 p.a. in FTB.

The effective average tax rate for this woman is 37 cents for every dollar earned. She faces marginal tax rates of up to 56.5 cents.

Add in the additional costs of work (transport, clothing and childcare for starters) and you can see why there are not a lot of married women with young children looking for work.

Professor Apps also makes the point that in addition to this, if these women go out and work and manage to save some money, they may no longer be eligible for the aged pension.

Its hardly encouraging, is it?