In the 2018 Federal Budget, the Coalition government announced its Personal Income Tax Plan, a seven-year plan of income tax cuts. These, and further cuts announced in the 2019 Budget, are all now law.
The first stage of the Personal Income Tax Plan providing targeted tax relief for low and middle-income earners has already been introduced. A further two stages are designed to protect middle income Australians from bracket creep and ensure Australians pay less tax by making the system simpler.
The timing and nature of the three stages is as follows:
- From the 2018/19 income year to 2021/22, a temporary Low and Middle Income Tax Offset (LMITO) will operate in addition to the existing Low Income Tax Offset (LITO)
- From the 2022/23 income year onwards, the temporary LMITO and the existing LITO will be rolled into a new Low Income Tax Offset
- From the 2018/19, 2022/23 and 2024/25 income years there will be changes to marginal tax rates and thresholds.
Tax offsets for low and middle-income earners
Currently, Australian resident individuals with taxable income that does not exceed $66,667 are entitled to the LITO. The maximum amount of the LITO is $445 for incomes of $37,000 or less. The offset then reduces by 1.5% of income in excess of $37,000.
In addition, the Low and Middle Income Tax Offset (LMITO) is available for the 2018/19 to 2021/22 income years to Australian residents with annual taxable income of up to $126,000. Eligible taxpayers may be entitled to receive both the LMITO and LITO for the first four years of the Government’s Personal Income Tax Plan.
The amount of LMITO will depend on your income, as set out in the following table:
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|Relevant income for the
2018/19 to 2021/22 income years
|Low and Middle Income Tax Offset amount|
|$37,000 or less||$255|
|$37,001 – $48,000||$255, plus 7.5% of income exceeding $37,000 (to a maximum benefit of $1,080)|
|$48,001 – $90,000||$1,080 (maximum)|
|$90,001 – $126,000||$1,080, less 3% of the amount exceeding $90,000|
The Low and Middle Income Tax Offset:
- Is not available to reduce tax payable on unearned income of minors (which is taxed at penalty rates)
- Is non-refundable and cannot be carried forward or transferred
- Does not have to be applied before other non-refundable tax offsets.
The new Low Income Tax Offset replaces both the LMITO and the LITO from the 2022/23 income year. The new offset is available to Australian residents if their taxable income for the relevant income year does not exceed $66,667.
The amount of this new LITO will depend on your relevant income level, as set out in the following table:
|Relevant income for the
2022/23 and later income years
|New Low Income Tax Offset amount|
|$37,500 or less||$700|
|$37,501 – $45,000||$700, less 5% of the income that exceeds $37,500|
|$45,001 – $66,667||$325, less an amount equal to 1.5% of the relevant income that exceeds $45,000|
The current LITO will be repealed after the introduction of the new Low Income Tax Offset in the 2022/23 income year.
Changes to marginal tax rates
The 2016/17 and 2017/18 personal income tax thresholds for Australian residents are as set out in the following tables:
|Taxable income||Rate||Current tax payable|
|$0 – $18,200||0%||Nil|
|$18,201 – $37,000||19%||Nil||+ 19% of amounts over $18,200|
|$37,001 – $87,000||32.5%||$3,572||+ 32.5% of amounts over $37,000|
|$87,001 – $180,000||37%||$19,822||+ 37% of amounts over $87,000|
|$180,000 +||45%||$54,232||+ 45% of amounts over $180,000|
The legislation gives effect to the following changes to the personal income tax thresholds — and rates of tax applicable to them — which the Treasurer announced on 8 May 2018 as part of the 2018/19 Federal Budget:
- From 1 July 2018, the taxable income threshold above which an individual who is taxed at a rate of 37% increased from $87,000 to $90,000 for both Australian resident and foreign resident taxpayers (for both ordinary taxable income and working holiday-maker taxable income).
- From 1 July 2022, the thresholds above which the second and third rates of income tax apply have been increased as follows:
|Existing threshold||Threshold from 1 July 2022||Tax rate applicable above threshold|
- From 1 July 2024, the 32.5% tax rate will be changed to 30%, the 37% tax rate will be abolished, and the threshold above which taxable income is taxed at a rate of 45% will be increased to $200,000.
The phasing of the tax rate changes (for Australian residents) are summarised in the following table.
Tax rate changes – Australian residents
|2018/19, 2019/20, 2020/21 and 2021/22||2022/23 and 2023/24||From 2024/25|
|Taxable income||Tax rate||Taxable income||Tax rate||Taxable income||Tax rate||Taxable income||Tax rate|
|$0 to $18,200||Nil||$0 to $18,200||Nil||$0 to $18,200||Nil||$0 to $18,200||Nil|
|$18,201 – $37,000||19% for amounts over $18,200||$18,201 – $37,000||19% for amounts over $18,200||$18,201 – $45,000||19% for amounts over $18,200||$18,201 – $45,000||19% for amounts over $18,200|
|$37,001 – $87,000||$3,572 + 32.5% for amounts over $37,000||$37,001 – $90,000||$3,572 + 32.5% for amounts over $37,000||$45,001 – $120,000||$5,092 + 32.5% for amounts over $45,000||$45,001 – $200,000||$5,092 + 30% for amounts over $45,000|
|$87,001 – $180,000||$19,822 + 37% for amounts over $87,000||$90,001 – $180,000||$20,797 + 37% for amounts over $90,000||$120,001 – $180,000||$29,467 + 37% for amounts over $120,000|
|$180,001 and over||$54,232 + 45% for amounts over $180,000||$180,001 and over||$54,097 + 45% for amounts over $180,000||$180,001 and over||$51,666 + 45% for amounts over $180,000||$200,001, and over||$51,592 + 45% for amounts over $200,000|
Disclaimer: The contents of this article are for the purposes of providing general information only. Persons should seek appropriate advice from a tax adviser, accountant or financial adviser before undertaking any investments or strategies with respect to their tax or superannuation interests.
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