Term deposit returns boosted by Budget tax cut

Australian term deposit holders are set to benefit from a new 50 per cent tax cut on the first $1,000 of interest earned on savings, which has been set out in the latest federal Budget.

Announcing the measure, treasurer Wayne Swan said he recognised the fact that term deposits are a preferred savings vehicle for many Australians – and particularly older savers – who prefer to invest their non-superannuation savings in interest-bearing products.

"Right now, there is considerable variation in the taxation treatment of alternative savings vehicles," he observed.

"While interest is taxed at the saver’s marginal rate without any discount, capital gains on assets held longer than a year receive a 50 per cent discount."

He said such an arrangement was disadvantageous to lower-wealth and older savers and that as a result, the 50 per cent tax break on the first $1,000 of interest would take effect from July 1st, 2011.

Such news will likely interest Aussies who wish to compare term deposits in search of the best deals. Last week, the Rudd government set out its Stronger, Fairer Simpler: Tax Plan for our Future which aims to deliver substantial improvements in retirement savings and a fairer distribution of superannuation tax concessions over the coming decade.

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