Individual Tax Changes
The Government is proposing a seven-year Personal Income Tax Plan which will be implemented in three steps:
Step 1 – Provide tax relief to low and middle income earners;
Step 2 – Provide tax relief to avoid bracket creep;
Step 3 – Removing the 37% tax bracket.
According to the budget papers, 25% of Australians are paying more than 32.5% in income tax. After the above changes have been implemented, it has been estimated that only 6% of Australians will pay more than 32.5% in income tax. The majority of this change will occur in the 2024-25 financial year.
Tax payers with taxable income of $100k will be approximately $1,125 better off and tax payers with taxable income of $200k will be $7,225 better off.
Step 1 – Introducing the low and middle income tax offset (LMITO)
The LMITO will be introduced to provide tax relief of $530 to low and middle income earners starting from the 2018/19 financial year.
The LMITO will be received as a lump sum when the individual lodges their tax return.
Taxpayers will receive the following offset;
Taxable income of $37k or less = up to $200
Taxable income between $37k and $48k = increase at a rate of 3 cents per $1 to maximum amount of $530;
Taxable income between $48k and $90k = $530;
Taxable income between $90k and $125,333 = phase out at a rate of 1.5 cents per $1.
Step 2 – Provide tax relief to avoid bracket creep for middle income earners
From 1 July 2018, the 32.5% income tax bracket will increase from $87k to $90k.
From 1 July 2022, the 19% income tax bracket will increase from $37k to $41k. The 32.5% income tax bracket will increase again from $90k to $120k. Additionally, the low income tax offset will increase from $445 to $645.
Step 3 – Removing the 37% tax bracket
From 1 July 2024, the 37% tax bracket will be removed and the 45% tax bracket will increase from $180k to $200k. See below the end outcome of these changes: