The Sunday BG has always been very clear in its mission to bring its readers the most useful and timely financial advice. Over the past five months we've explored savings and investment options, pensions, mortgages and real estate and hope that you, the reader would have benefitted from these pages.
This week the Sunday BG revisits two of the couples in one of the stories in our very first edition, John and Mary and Michael and Sarah, who when you last saw them were searching for affordable homes. Both couples fell into what would be considered middle income groups, with John and Mary earning a combined monthly income of $20,000 and Michael and Sarah around $12,000.
Catching up with them a few months later, the Sunday BG will be examining how they would fare with new tax allowances for first time homeowners, assuming they found a home they could afford and, how much new provisions for increased approved annuity allowance would affect them.
In last Monday's budget, Finance Minister, Larry Howai, announced that tax deductions for first time owners of a house on mortgage interest would increase from $18,000 to $25,000. That's from $1,500 a month to $2,083 a month. Meanwhile, deductions for approved annuities increased to $50,000 from $30,000.
After a personal tax allowance on their gross yearly salary of $144,000, Michael and Sarah have an annual taxable income of $84,000. Prior to 2014, they would have been able to take advantage of the tax breaks on their first time home and their annuity of $18,000 and $30,000 respectively.This would have made given them total deductions of $48,000. With the increases in this year's budget, however, this goes up to $75,000, taking their taxable income down to $9,000.
Meanwhile, John and Mary's monthly income of $20,000, gives them an annual gross income of $240,000. With a personal allowance of $60,000, John and Mary are left with a taxable income of $180,000. Of this, $75,000 can be claimed for their new home and their approved annuity bringing their tax bill to $105,000, an improvement over 2013's $132,000 figure.
A flat tax of 25 per cent is applied to Michael and Sarah's 2014 taxable allowance of $9,000. When the result ($2,250) is subtracted from their taxable income, Michael and Sarah can only be taxed on $6750 of their yearly income.
This is significantly lower than the 2013 figure of $36,000, which, subject to flat tax of 25 per cent would have left them with tax payments of $9,000. Their fellow couple John and Mary, after the flat tax is applied will only pay $26,250 in tax, whereas in 2013, they would have had to pay $33,000.