Income tax cuts receive tick of approval

After a backflip from Labor, the Government has found the numbers in the Senate to push through all three stages of its personal income tax cuts.

The Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 (Bill) was approved by the Senate on 5 July 2019, and has passed through Parliament without any amendments. The Bill is currently awaiting royal assent from Australia’s new Governor General, David Hurley AC DSC.

The Bill is set to deliver $158 billion in personal income tax cuts to low and middle-income earners over the next ten years. Almost 10 million Australians are expected to receive at least a partial benefit from these measures.

Set out below are some of the important changes that will take effect the day after the Bill receives royal assent.

Bringing forward personal income tax cuts

Summary of the changes

The Bill makes several changes to the income tax brackets as well as to the marginal income tax rates.

Previously, from 1 July 2022, the 19% personal income tax bracket was to apply to a taxpayer’s income between $18,201 and $41,000. The upper end of that top threshold will now be raised to $45,000.

Similarly, from 1 July 2024, the 32.5% personal income tax bracket was to apply to a taxpayer’s income between $41,001 and $200,000. This rate will now be lowered to 30% for income between $45,001 and $200,000. Additionally, as part of the original measures under the Personal Income Tax Plan that was announced (and legislated) in 2018, the 37% tax bracket will be abolished from this date.

The tables below summarise the changes over the next 6 years.

Years ending 30 June 2019 to 30 June 2022
Taxable income Tax on this income
$1–$18,200 Nil
$18,201–$37,000 19 cents for each $1 over $18,200
$37,001–$90,000 $3,572 plus 32.5 cents for each $1 over $37,000
$90,001–$180,000 $20,797 plus 37 cents for each $1 over $90,000
$180,001 and over $54,097 plus 45 cents for each $1 over $180,000

 

Years ending 30 June 2023 to 30 June 2024
Taxable income Tax on this income
$1–$18,200 Nil
$18,201–$45,000 19 cents for each $1 over $18,200
$45,001–$120,000 $5,092 plus 32.5 cents for each $1 over $45,000
$120,001–$180,000 $29,467 plus 37 cents for each $1 over $120,000
$180,001 and over $51,667 plus 45 cents for each $1 over $180,000

 

Income years ending 30 June 2025 onward
Taxable income Tax on this income
$1–$18,200 Nil
$18,201–$45,000 19 cents for each $1 over $18,200
$45,001–$200,000 $5,092 plus 30 cents for each $1 over $45,000
$200,001 and over $51,592 plus 45 cents for each $1 over $200,000

Low and middle-income tax offsets raised

The low and middle-income tax offset (LMITO) will now be increased.

The previous maximum LMITO available will be increased from $530 to $1,080 per annum, with the base amount increasing from $200 to $255 per annum.

The increased LMITO will be available for returns lodged for the income year ending 30 June 2019. The LMITO will remain available for the income years ending 30 June 2020 to 30 June 2022, after which it will be removed.

Subsequently, from 1 July 2022, the low-income tax offset (LITO) will be increased.

The LITO will be increased from $645 to $700. The full LITO will be available to people with taxable income of less than $37,500. It will progressively be phased out for those with income between $37,500 and $66,667.

The tables below summarise the changes.

Low and Middle Income Tax Offset (LMITO)
(available in the 2018-19, 2019-20, 2020-21, and 2021-22 income years)
Taxable Income Revised LMITO
$0-$37,000 $255
$37,001-$48,000 $255 plus 7.5 cents for each $1 over $37,000
$48,001-$90,000 $1,080
$90,001-$126,000 $1,080 less 3 cents for each $1 over $90,000

 

Low Income Tax Offset (LITO)
(available from 1 July 2022)
Taxable Income Revised LITO
$0-$37,500 $700
$37,501-$45,000 $700 less 5 cents for each $1 over $37,500
$45,001-$66,667 $325 less 1.5 cents for every $1 over $45,000

Reflections

While there is no doubt that taxpayers will be excited by the cuts to income tax rates and the raised low and middle-income tax offset, it should be kept in mind that the projected $158 billion in income tax cuts are to be delivered over the course of the next decade. In that time, Australia will experience two full election cycles and it is possible that the changes may be rolled back by subsequent governments.

Regardless, the flattening of the progressive marginal tax rate scale is a win for simplicity. With the reduction of the 32.5% rate to 30%, and the removal of the 37% tax bracket by 2024-25, 94% of Australian taxpayers are projected to have a tax rate of 30% or less.

Unlike the marginal tax rate cuts, the change to the LMITO will be more immediate, with Australian taxpayers benefitting when they lodge their returns from 1 July 2019. However, the increase in the LITO is not scheduled to take effect until 1 July 2022, after the completion of another election cycle.

This article was written with the assistance of Charlie Renney, Law Graduate.


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