This article was written by Stefania Maccarrone
There have been significant personal tax cuts for low to middle income earners.
The Government announced that it will lower taxes for individuals that are low and middle income earners. Building on its legislated Personal Income Tax Plan, the changes are expected to provide immediate relief to low and middle income earners whilst also supporting consumption growth and easing cost of living pressures.
The measures are expected to reduce revenue by $19.5 billion over the forward estimates period, comprising: $3.5 billion in 2019 20; $3.7 billion in 2020 21; $3.8 billion in 2021 22; and $8.6 billion in 2022 23.
Immediate relief to low and middle income earners
The Government announced that it will increase the non refundable low and middle income tax offset (“LMITO”). Under the changes, the reduction in tax provided by LMITO will increase from a maximum amount of $530 (as currently legislated) to $1,080 per annum and the base amount will increase from $200 to $255 per annum for the 2018 19, 2019 20, 2020 21 and 2021 22 income years.
The proposed changes will operate as follows:
- For taxpayers with taxable income of $37,000 or less, the LMITO will now provide a reduction in tax up to $255.
- For taxpayers that have taxable incomes between $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080.
- For taxpayers that have taxable incomes between $48,000 and $90,000 the value of the maximum offset will be $1,080.
- From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.
The LMITO will be received on assessment after individuals lodge their tax returns for the 2018 19, 2019 20, 2020 21 and 2021 22 income years to ensure that taxpayers receive a benefit when they lodge returns from 1 July 2019.
Locking in lower taxes
From 1 July 2022, the Government announced that it will increase the top threshold of the 19 per cent personal income tax bracket from $41,000 (as currently legislated under the Personal Income Tax Plan), to $45,000.
The Government announced that it will increase the low income tax offset (“LITO”) from $645 (as currently legislated under the Personal Income Tax Plan) to $700 from 1 July 2022. For taxable incomes between $37,500 and $45,000, the increased LITO will be withdrawn at a rate of 5 cents per dollar (instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as previously legislated under the Personal Income Tax Plan). For taxable incomes between $45,000 and $66,667, the LITO will then be withdrawn at a rate of 1.5 cents per dollar.
The increase to the top threshold of the 19 per cent personal income tax bracket together with the changes to LITO are expected to lock in the reduction in tax provided by LMITO when LMITO is removed.
Further structural changes to the tax system to deliver lower taxes
The Government announced that it will reduce the 32.5 per cent marginal tax rate to 30 per cent from 1 July 2024 25. This change is designed to closely align the middle tax bracket of the personal income tax system with corporate tax rates, with the aim of improving incentives for taxpayers. Under the existing measures, the 37 per cent tax bracket will be abolished in 2024 25. It is expected that with these announced changes, around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less by 2024 25.
The Government has announced that from the 2018-2019 income year, it will increase the Medicare levy for low income thresholds for singles, families, and seniors and pensioners by taking into account recent movements in the CPI so that low income taxpayers generally continue to be exempted from paying the Medicare levy. It is estimated that this measure will reduce revenue by $250.0 million over the forward estimates period.
The changes to the Medicare Levy will operate as follows:
- For singles, the threshold will be increased from $21,980 to $22,398;
- For families, the threshold will be increased from $37,089 to $37,794;
- For single seniors and pensioners, the threshold will be increased from $34,758 to $35,418;
- The family threshold for seniors and pensioners will be increased from $48,385 to $49,304;
- For each dependent child or student, the family income thresholds increase by a further $3,471, instead of the previous amount of $3,406.