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Savings discount for interest income

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Currently, all interest income is taxed at an individual’s marginal rate, while capital gains tax on other assets like shares and property that is held for more than one year attract a 50% discount. The new tax regime will remove this distortion and encourage savings.

To generate $1,000 of interest, an individual would require a savings balance of approximately $20,000, assuming a 5% interest rate. Any interest in excess of $1000 is taxed at the taxpayers’ normal marginal tax rate without a discount.

The measure applies only to individual taxpayers, not to super funds or insurance bonds. Approximately 5.7 million taxpayers are expected to benefit from the discount in its first year of operation.

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