tax plan bill

The Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018 has been introduced into parliament.

Changes to tax offsets

Schedule 1 of the Bill proposes to amend the tax law to:

  • • introduce the low and middle income tax offset to reduce the tax payable by low and middle-income earners in the 2018/19, 2019/20, 2020/21 and 2021/22 income years, and
  • • for 2022/23 and later income years, merge the low and middle income tax offset and the low income tax offset (LITO) into a more generous new low income tax offset.

Australian resident individuals (and certain trustees) with relevant income that does not exceed $125,333 will be entitled to the low and middle income tax offset for the 2018/19, 2019/20, 2020/21 and 2021/22 income years.

The amount of the low and middle income tax offset will be:

  • • for taxpayers with income not exceeding $37,000 — $200
  • • for taxpayers with income exceeding $37,000 but not exceeding $48,000 — $200 plus 3% of the amount of the income that exceeds $37,000
  • • for taxpayers with income exceeding $48,000 but not exceeding $90,000 — $530, and
  • • for taxpayers with income exceeding $90,000 — $530 less 1.5% of the amount of the income that exceeds $90,000.

Entitlement to the low and middle income tax offset will be in addition to the existing LITO.

For 2022/23 and later income years, both the LITO and the low and middle income tax offset will be replaced with the new low income tax offset.

Consistent with the LITO, individuals with taxable income that does not exceed $66,667 (as well as certain trustees taxed on behalf of individuals) will be entitled to the new low income tax offset. The base amount of the new low income tax offset will be $645. However, this amount will be reduced by 6.5% of the amount by which the taxpayer’s relevant income exceeds $37,000 but does not exceed $41,000 and by 1.5% of the amount by which the taxpayer’s relevant income exceeds $41,000.

Changes to income tax rate thresholds

Schedule 2 of the Bill proposes to amend the Income Tax Rates Act 1986 to progressively increase the income tax rate thresholds in 2018/19, 2022/23 and 2024/25.

The following proposed changes to the thresholds at which particular rates of income tax (ignoring the Medicare levy) apply are:

  • • from the 2018/19 income year, the rate of income tax that applies to the amount of an individual’s ordinary taxable income between $37,001 and $90,000 (rather than $87,000) is 32.5%
  • • from the 2022/23 income year:
    • – the rate of tax that applies to the amount of an individual’s ordinary taxable income between $18,201 and $41,000 (rather than $37,000) is 19%, and
    • – the rate of tax that applies to the amount of an individual’s ordinary taxable income between $41,001 and $120,000 (rather than $87,000 or $90,000) is 32.5%
    • • from the 2024/25 income year:
      • – the rate of tax that applies to the amount of an individual’s ordinary taxable income between $41,001 and $200,000 (rather than $87,000, $90,000 or $120,000) is 32.5%
      • – the rate of tax that applies to the amount of an individual’s ordinary taxable income exceeding $200,000 (rather than $180,000) is 45%, and
      • – the 37% rate of income tax is abolished.

Equivalent changes will apply to other entities that are taxed like individuals as well as to the thresholds that apply to foreign residents and working holiday makers.

Date of effect

The low and middle income tax offset will be available for the 2018/19, 2019/20, 2020/21 and 2021/22 income years. The new low income tax offset will be available in the 2022/23 income year and later income years.

The initial changes to income tax rate thresholds will apply from the 2018/19 income year. Further changes to the thresholds at which marginal rates of income tax apply will have effect from the 2022/23 and 2024/25 income years.

The measures in this Bill were previously announced in the 2018/19 Budget.

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