Month: June 2018

The story unfolded like this. The Bill was passed on 20 June 2018 by the Senate with 3 Opposition amendments that removed step 3 of the Government’s Personal Income Tax Plan. Under step 3, from 1 July 2024, the top threshold of the 32.5% bracket would increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers would pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket would apply to taxable incomes of $41,001 to $200,000.

Then the House of Reps on 21 June 2018 disagreed to the Senate’s amendments and the Bill immediately went back to the Senate which did not insist on its amendments. In effect, this means the Bill passed all stages without amendment. So, the Government’s 7-year 3-step plan to reform personal income tax announced in this year’s 2018 Federal Budget has now become law. The amendments in the Bill are as follows:

• Step 1 will see a new non-refundable Low and Middle Income Tax Offset from 2018-19 to 2021-22, designed to provide tax relief of up to $530 for each of those years. The offset will be delivered on assessment after an individual submits their tax return and will be in addition to the existing low income tax offset (LITO).
  • The Low and Middle Income Tax Offset will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. Between $37,000 and $48,000, the value of the offset will increase at a rate of 3 cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. From $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar. The benefit of the Low and Middle Income Tax Offset is in addition to the existing Low Income Tax Offset.
• Step 2 will increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000 from 1 July 2018. In 2022-23, the top threshold of the 19% bracket will increase from $37,000 to $41,000 and the LITO will increase from $445 to $645. The increased LITO will be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667. The top threshold of the 32.5% bracket will increase from $90,000 to $120,000 from 1 July 2022.
• Step 3 – from 1 July 2024, the top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000.

Tax rates and thresholds for 2018-19 onwards

The following table reflects the now legislated personal tax threshold and rate changes (highlighted in bold), excluding the 2% Medicare levy: