How the tax budget will work for your savings accounts

Wednesday May 12, 2010

In a surprising twist from the latest tax budget as release from the Federal Government, Australian savings accounts may now offer more to their customers after some revisions have been announced.

In the latest tax budget the Government announced that a new 50 per cent tax discount on interest will take effect, meaning millions of Australians will only be paying half of the total interest earned in their savings accounts from July 1st 2011. This means that savings account holders will only pay tax on half of whatever their total savings amount is, as opposed to the current system which taxes on a marginal rate where taxpayers have to declare at tax time how much interest they gained on their savings accounts.

According to the Federal Government figures, this will benefit over 5.7 million people who earn under $80,000 a year.

What's more, the Federal Government further announced in its tax budget that it will now relax the regulations surrounding the first home savings accounts to make them more user friendly. The

Government's first home saver accounts currently have time restrictions in place that require savers keep their funds in the first home saver account for four financial years BEFORE they are allowed to use those funds to buy a home.

This has resulted in the accounts being fairly unpopular as first home buyers look for more flexibility in their savings accounts.

However the announced tax budget has now revised this amount and allows the following:

• The funds within such an account can be used towards a mortgage on a house bought during the four-year savings period

• The Government will contribute 17 per cent on the first $5000 put into the first home saver account

The government stated that these changes will boost Australians savings habits while also encouraging greater competition within the market for the consumers benefit.

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