Personal income tax cuts (2018–2025): What it means for you

Australia’s income tax system is undergoing a radical overhaul designed to reduce tax for the majority of individuals, protect middle-income earners from bracket creep and simplify the system.

While the Coalition government’s seven-year Personal Income Tax Plan was originally laid out in the 2018 Federal Budget, the timetable has been tweaked along the way due to the impact of COVID on the economy.

Background

In the 2018 Federal Budget, the Coalition government announced its seven-year Personal Income Tax Plan, with implementation scheduled take place over three stages.

In the 2020 Federal Budget, the government announced it would bring forward stage 2 of the plan to the 2020–21 financial year, and extend the Low and Middle Income Tax Offset (LMITO) for the 2020–21 financial year.

In the 2021 Federal Budget, the government announced it would further extend the LMITO for the 2021–22 financial year.

A summary of the updated timetable is below.

• Stage 1 (2018–19 to 2019–20): A new temporary LMITO to a maximum of $1,080, operating in addition to the existing Low Income Tax Offset (LITO)
• Stage 2 (2020–21 onwards): Retaining LMITO ($1,080 for 2020–21 and $1,500 for 2021–22 only), increasing LITO from $455 to a maximum of $700, raising the upper threshold for the 19% tax bracket from $37,000 to $45,000, changing the 32.5% tax bracket from $37,001–$90,000 to $45,001–$120,000 and raising the lower threshold for the 37% tax bracket from $90,001 to $120,001
• Stage 3 (2024–25 onwards): Changing the 32.5% tax rate to 30%, raising the upper threshold for the 30% tax bracket from $120,000 to $200,000, removing the 37% tax bracket and raising the 45% lower threshold from $180,000 to $200,000

Read on for details of these changes.

Tax offsets for low- and middle-income earners

Currently, Australian resident individuals with taxable income of $66,667 or less are entitled to the Low Income Tax Offset (LITO).

The amount of LITO will depend on your income, as set out in the following table:

Relevant income for the 2020–21 and later income years	New Low Income Tax Offset amount
$37,500 or less	$700
$37,501 – $45,000	$700, less 5% of income above $37,500
$45,001 – $66,667	$325, less 1.5% of income above $45,000

Source: ATO

In addition, the Low and Middle Income Tax Offset (LMITO) is available for the 2018–19 to 2021–22 financial 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 2018–19 to 2021–22 financial years.

The amount of LMITO will depend on your income, as set out in the following table:

Relevant income for the 2021–22 income year	Low and Middle Income Tax Offset amount
$37,000 or less	$675
$37,001 – $48,000	$675, plus 7.5% of income exceeding $37,000 (up to a maximum benefit of $1,500)
$48,001 – $90,000	$1,500 (maximum)
$90,001 – $126,000	$1,500, less 3% of income above $90,000

Relevant income for the 2018–19 to 2020–21 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 (up to a maximum benefit of $1,080)
$48,001 – $90,000	$1,080 (maximum)
$90,001 – $126,000	$1,080, less 3% of income above $90,000

Source: ATO

Changes to marginal tax rates

Current details of the government’s three-stage Personal Income Tax Plan – including changes to personal income tax thresholds and rates of tax that apply to them — are summarised below:

• From 1 July 2018: Raising the lower threshold for the 37% tax bracket from $87,000 to $90,000
• From 1 July 2020: Raising the upper threshold for the 19% tax bracket from $37,000 to $45,000, changing the 32.5% tax bracket from $37,001–$90,000 to $45,001–$120,000 and raising the lower threshold for the 37% tax bracket from $90,001 to $120,001
• From 1 July 2024: Changing the 32.5% tax rate to 30%, raising the upper threshold for the 30% tax bracket from $90,000 to $120,000, removing the 37% tax bracket and raising the 45% lower threshold from $180,000 to $200,000.

The phasing of the tax rate changes from 2016–17 onwards (for Australian residents) are set out in the following table.

Tax rate changes – Australian residents

2016–17 and 2017–18	2018–19 and 2019–20	2020–21*, 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 $51,667 + 45% for amounts over $180,000	$200,001, and over $51,592 + 45% for amounts over $200,000
LITO maximum: $445	LITO maximum: $445	LITO maximum: $700	LITO maximum: $700
	LMITO maximum: $1,080	LMITO maximum: $1,080*, $1,500**

Source: Treasury *2020–21 and **2021–22 only