Personal tax rates – 7 year reform plan starting from 2018-19

The Government announced staged tax relief for low and middle income earners as part of a 7year, 3-step plan to reform personal income tax:

Step 1: 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 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 offset will be delivered on assessment of an individual’s tax return and will be in addition to the existing low income tax offset (LITO).

Step 2: Introduce changes to the tax brackets and low income tax offsets as follows:

  • 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 The increased LITO will be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667.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: The top threshold of the 32.5% bracket will increase from $120,000 to $200,000 from 1 July 2014. This will remove the 37% tax bracket completely. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000.

The Government had also proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019, but has decided not to proceed with this.

Tax rates and thresholds for 2018-19 onwards

The following table reflects the proposed personal tax rate and threshold changes (excluding the 2% Medicare levy):

 

Tax rates and thresholds

Rate

2017-18

2018-19 to 2021-22

2022-23 and 2023-24

2024-25 onwards

0%

$0 - $18,200

$0 - $18,200

$0 - $18,200

$0 - $18,200

19%

$18,201 - $37,000

$18,201 - $37,000

$18,201 - $41,000

$18,201 - $41,000

32.5%

$37,001 - $87,000

$37,001 - $90,000

$41,001 - $120,000

$41,001 - $200,000

37%

$87,001 - $180,000

$90,001 - $180,000

$120,001 - $180,000

N/A

45%

$180,001+

$180,001+

$180,001+

$200,001+

Taxation of income for high profile individuals

The Government announced that high profile individuals will no longer be able to take advantage of lower tax rates by licensing their fame or image to another entity from 1 July 2019. This measure intends to ensure that all remuneration (including payments and non-cash benefits) provided in respect of a person's fame or image will be included as assessable income of the individual.

Medicare levy low-income thresholds for 2017-18

For the 2017-18 income year, the Medicare levy low-income threshold will be increased as follows:

  • for singles the threshold will be increased to $21,980 (up from $21,655 for 2016-17)
  • For couples with no children, the family income threshold will be increased to $37,089 (up from $36,541 for 2016-17)
  • For single seniors and pensioners eligible for the SAPTO, the threshold will be increased to $34,758 (up from $34,244 for 2016-17)
  • The family threshold for seniors and pensioners will be increased to $48,385 (up from $47,670)
  • The additional amount of threshold for each dependent child or student will be increased to $3,406 (up from $3,356)

Minors and testamentary trusts: Concessional tax rates limit

Concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from deceased estates or the proceeds of the disposal or investment of those assets. Currently, income received by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors. This measure will apply from 1 July 2019.