2018 Federal Budget providing PAYG tax relief for low and middle income earners

The Treasurer, Scott Morrison , handed down the 2018 Federal budget last night, announcing proposed cuts to personal income tax rates to stimulate consumer spending and make tax ‘lower, fairer and simpler’.
The plan is purported to be rolled out over a 7-year period in 3 distinguishable steps.

Step 1 – a new non-refundable Low and Middle Income Tax Offset from 1 July 2018 to June 2022, providing up to $530 of tax relief for each of those years.  The offset is planned to be applied to the income tax assessments after an individual lodges their tax return and will be in addition to the existing Low Income Tax Offset (LITO).

Step 2 – an increase to the 32.5% tax bracket from $87,000 to $90,000 commencing 1 July 2018.  In 2022-23 the 19% bracket top end threshold will increase from $37,000 to $41,000 and the LITO will increase from $445 to $645, but will decrease at a rate of 6.5 cents per dollar up to $41,000, and a rate of 1.5 cents per dollar up to $66,667. The top threshold for the 32.5% bracket will increase to $120,000 on 1 July 2022, up from $90,000.

Step 3 – an increase in the 32.5% tax bracket will increase from $120,000 to $200,000 on 1 July 2024 and the top marginal rate of 45% will be paid by those earning in excess of $200,000 from that date.

The Medicare Levy is set to remain at 2%, meaning the previously proposed increase to 2.5% has been dropped and will presumably be removed from the legislation Notice Paper currently before parliament.

 

Summary of rates and thresholds

Rate

2018-19 to 2021-22

2022-23 and 2023-24

2024-25 onwards

0%

$0 - $18,200

$0 - $18,200

$0 - $18,200

19%

$18,201 - 37,000

$18,201 -41,000

$18,201 - $41,000

32.5%

$37,001 -90,000

$41,001-120,000

$41,001 -$200,000

37%

$90,001- $180,000

$120,001- $180,000

N/A

45%

$180,001+

$180,001+

$200,001+


The Treasurer said the government’s personal tax plan acknowledges that “to create a stronger economy there must be reward for effort”.  “Under our personal tax plan, 94 per cent of Australian taxpayers will pay no more than 32.5 cents in the dollar.  That compares to 63 per cent if we leave the system unchanged,” said Morrison.

The changes to the personal tax plan should be welcome news to business owners, who may see an increase in spending, resulting from the tax relief.