What’s new

10 May 2018

Budget 2018 - Individuals

Changes Affecting Individuals Taxpayers

Personal Income Tax Plan

The government has announced a three-step Personal Income Tax plan, that will be introduced over 7 years.

Step 1 is targeted tax relief to low and middle-income earners through the introduction of the Low and Middle Income Tax Offset. This is a non-refundable tax offset of up to $530 per year for tax-payers earning up to $125,333 pa.

The tax offset will be available in the 2018-2019 to 2021-2022 income tax years and will be received as a lump sum on assessment after an individual lodges their annual tax return for each of those years.

The benefit of the Low and Middle Income Tax Offset is in addition to the existing Low Income Tax Offset.

The proposed offset will provide benefits as follows:

  • Up to $200 for taxpayers with taxable income of $37,000 or less
  • For taxpayers with taxable income between $37,000 and $48,000 the value of the offset will increase at a rate of 3 cents per dollar to a maximum benefit of $530
  • Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530
  • The offset will then phase out at a rate of 1.5 cents per dollar for taxpayers with taxable incomes from $90,001 to $125,333

Step 2 aims to prevent bracket creep for middle income earners. The government will first increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000 from 1 July 2018.

From 1 July 2022 the top threshold of the 19% tax bracket will increase from $37,000 to $41,000 and the Low Income Tax Offset will increase from $445 to $645. In the same year the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000

Step 3 is an attempt to simplify and flatten the personal tax system by removing the 37% tax bracket completely. From 1 July 2024, the top threshold of the 32.5% tax bracket will increase from $120,000 to $200,000. This will mean the 32.5% tax bracket will apply to taxable income of $41,001 to $200,000. Taxpayers with taxable incomes exceeding $200,000 will continue to pay tax at the top marginal rate of 45%

The following table reflects the proposed personal tax rates and threshold changes over the next 7 years, excluding the Medicare levy. 

Rate

Current year

2017-2018

2018-19 to

2021-22

2022-23 to

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 +

 

Deductions for Personal Super contributions

The government has announced measures aimed at improving the Notice of Intent (NOI) processes for claiming deductions for personal superannuation contributions.

Some individuals are currently receiving deductions for personal super contributions without submitting a Notice of Intent form to their superannuation fund, despite it being a requirement to do so. The result of this is their superannuation fund does not apply the appropriate 15% tax to their contribution, meaning that when they claim the deduction on their tax return, no tax is paid on the contribution amount at all.

One of the measures will be an addition to income tax returns to alert individuals to the NOI requirements with a tick box to confirm they have complied.

This requirement is particularly important from the 2017-18 year given that individuals up to age 75 can now deduct personal super contributions, regardless of whether they earn 10% or more of their income from employment (previously it was only allowed to those who earned less than 10% of their income from employment).

 

Medicare levy to remain unchanged

The government had proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019 but has announced it will not proceed with this increase.

Originally the increase was deemed necessary in order to cover the National Disability Insurance Scheme (NDIS), however the government has announced it will be able to cover the NDIS expenditure without the increase due to the “improving economy and fiscal position”.  

 


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