• Federal Budget 2016 - Individuals

Tax Cuts for Average Wage Earners

The Government has announced that it will increase the average 32.5% personal income tax bracket from $37,001 - $80,000 to $37,001 - $87,000, effective 1 July 2016. It is expected that this will prevent half a million average full-time wage earners from moving into the second top tax bracket until 2019-20.

Furthermore, the Treasurer has indicated that the 2% debt levy on individuals earning more than $180,000 per annum will not be extended beyond its initial three year term, and will cease at the end of the 2016-17 financial year.

Current and Proposed Tax Rates

The current and proposed personal tax rates and thresholds (including the 2% temporary budget deficit levy, but excluding the 2% Medicare levy) are as follows:

 

2015-16

2016-17

 

Threshold

Rate

Threshold

Rate

1st rate

$0 - $18,200

0%

$0 - $18,200

0%

2nd rate

$18,201 - $37,000

19.0%

$18,201 - $37,000

19.0%

3rd rate

$37,001 - $80,000

32.5%

$37,001 - $87,000

32.5%

4th rate

$80,001 - $180,000

37.0%

$87,001 - $180,000

37.0%

5th rate

$180,001 +

47.0%

$180,001 +

47.0%

With the Medicare levy included, the top marginal rate is 49% from 1 July 2014 to 30 June 2017.

Low Income Tax Offset

The Government has not included a proposal to change the low income tax offset. The offset will remain at $445 for individuals earning up to $37,000 and reduce by 1.5% for each dollar earned in excess of $37,001, up to a cap of $66,666.

Non-Resident Tax Rates

The current and proposed personal tax rates and thresholds are as follows:

 

2015-16

2016-17

 

Threshold

Rate

Threshold

Rate

1st rate

$0 - $80,000

32.5%

$0 - $87,000

32.5%

2nd rate

$80,001 - $180,000

37.0%

$87,001 - $180,000

37.0%

3rd rate

$180,001 +

47.0%

$180,001 +

47.0%


Foreign residents who hold a Special Program Visa (subclass 416), and are employed by an approved employer under the Seasonal Labour Mobility Program, will be taxed at a flat rate of 15%.

BDO Comment

While BDO commends providing more room in the tax system for average full-time wage earners to earn more without being taxed more, it appears that lower wage earners missed out this year with the low income tax offset remaining stagnant. In contrast, higher wage earners were the real winners, with the Government announcing that the controversial debt levy will not extend over its three year term, resulting in a 2% reduction. Furthermore, the expansion of the third tax bracket will also assist higher wage earners.