When you return pension income, you must insert an indicator - which really just lets the Tax Office computer know how much Senior Australian tax offset (rebate) can be allowed.

In the 2001 Budget, the Government, which was facing criticism over its implementation of a new tax system which included GST, BAS and various anti avoidance measures, faced up to the electoral consequences of its actions which had alienated many voters. It sought to bring senior Australians, one of the more visible interest groups, on side.

To do this, changes were made to the income tax threshold to ensure those Australians largely dependent upon the age pension would not be required to pay tax.

To do this, the existing age pensioner rebate was increased to ensure the following thresholds took effect for the year ended 30/6/2001

What follows is an edited version of a Tax Office release on the thresholds, and the indicators required to ensure the appropriate choice by the Tax Office computer.

The Treasurer last night announced changes to the tax offsets and Medicare levy thresholds that may affect senior Australians. In addition, people who receive Australian Government pensions but are not of age pension age will be affected by increases to the Medicare levy income threshold.

The proposed changes to the low income age persons tax offset and the pension tax offset for people who have reached age pension age will mean that these people will not have a tax liability where their income is below the new thresholds in the table below.

The new thresholds for senior Australians apply to taxpayers who are at least 65 years old for males or 61.5 years old for females at 30 June 2001. Different age conditions apply to recipients of pensions from the Department of Veterans' Affairs. The tax offset for senior Australians reduces at the rate of 12.5 cents for each dollar over the new 2001 thresholds and cuts out at the taxable income levels shown on the right hand column of the table.

The thresholds that apply to "Other Eligible" taxpayers relate to those below the age criteria who receive an eligible Australian Government pension. Their income thresholds are unaffected by the proposed measures.

The table also shows the new Medicare levy thresholds that will apply to senior Australians and other eligible taxpayers affected by these changes. There is also an increase in the Medicare levy family income threshold from $23299 to $31729 for those taxpayers who qualify for the senior Australians tax offset.

A small number of PAYG instalment taxpayers will be entitled to a full or part tax offset and will be able to exit the PAYG Instalment system.

Annual PAYG Instalment notices have already issued to annual payers. Taxpayers who have paid their annual instalment can lodge their 2001 tax return to claim the instalment paid. Taxpayers who have not paid their annual instalment and wish to leave the PAYG system or pay a reduced amount, can call 13 61 40 and ask the ATO to vary their account.

The ATO will identify eligible quarterly payers and remove them from the PAYG Instalment system before the June quarter activity statement issues. Affected taxpayers will be notified.

Activity statements will still need to be lodged if there are obligations other than PAYG Instalments such as GST, PAYG, Tax Withheld or FBT.

Senior Australians and other Australian government pension recipients whose taxable incomes are at or below the proposed new thresholds may not be required to lodge an income tax return. However, as usual, those taxpayers claiming a refund of tax credits will need to lodge a tax return.

The changes do not require alteration to return forms. We will use our systems to identify taxpayers who will be affected by the proposed changes. For this purpose we will be making changes to our processing systems. We expect to have these in place early in the new financial year. This won't affect normal processing. Any affected returns will be held and processed immediately after implementation.

The ATO is discussing with software providers the implications of these changes.