• Individuals - Federal Budget 2019

Personal Income Tax Cuts

In a pre-election sweetener, the Coalition has built further on their Personal Income Tax Plan measures originally released in the 2018-19 Budget. The Government’s multi-faceted approach aims to reduce cost of living pressures and simplify the individual income tax system for everyday Australians.

Non-refundable low and middle income tax offset (LMITO)

The Government’s first measure seeks to reduce tax on individuals by increasing the LMITO over the next four income years as follows:

Taxable Income band (TI) LMITO – currently proposed LMITO – currently legislated
Nil - $37,000 $255 $200
$37,001 - $48,000 $255 + ([TI - $37,000] x 7.5%) $200 + ([TI - $37,000] x 3%)
$48,001 - $90,000 $1,080 $530
$90,001 - $125,999 $1,080 – ([T1 - $90,000] x 3.0%) $530 – ([T1 - $90,000] x 1.5%)
$126,000 plus Nil Nil

Under the Government’s proposal, taxpayers can expect to receive their first LMITO following lodgement of their 2019 Income Tax Return. Going forward, this measure seeks to provide taxpayers with a benefit as they lodge their Income Tax Returns from 1 July 2019.

Tax brackets get cut

In addition, the Government intends to reduce the current 32.5% marginal income tax rate to 30% from 1 July 2024. In conjunction with the measures announced by the Government during the 2018-19 Budget, these measures seek to align the middle income tax bracket for individuals with corporate income tax rates, thereby improving incentives for working Australians.  

The cumulative impact of these measures is expected to result in the following:

2017/18 Thresholds 2017/18 Tax Rates 2024/25 Tax Rates 2024/25 Thresholds
Nil - $18,200 0% 0% Nil - $18,200
$18,201 - $37,000 19% 19% $18,201 - $45,000
$37,001 - $90,000 32.5% 30% $45,001 - $200,000
$90,001 - $180,000 37% 37% bracket removed
$180,000 plus 45% 45% $200,001 plus

Low Income Tax Offset (LITO)

The Government’s proposed changes to the existing tax brackets will also operate to give low income earners an increased $55 maximum benefit from the previously planned offset. This is expected to take effect from 1 July 2022.

Further, under the Government’s initiative, the LITO will be recovered at a lower rate of 5 cents per dollar for taxable incomes between $37,500 and $45,000 and an additional 1.5 cents per dollar from taxable incomes between $45,001 and $66,667. This was originally intended to be recovered at a rate of 6.5 cents per dollar for the taxable income bracket between $37,000 and $41,000 and 1.5 cents per dollar for the $41,001-$66,667 bracket.

2018-19 to 2021-2022 2022-23 Onwards
Taxable Income (TI) LITO Taxable Income (TI) Updated LITO
$0-$37,000 $445 $0-$37,500 $700
$37,001-$66,666 $445–([TI-$37,000]x1.5%) $37,501-$45,000 $700-([TI-$37,500]x5%])
$66,667+ $Nil $45,001-$66,667 $325-([TI-$45,000]x1.5%])
    $66,667+ $Nil

Medicare Levy Thresholds Increased

Finally, the Government has announced proposed increases to the low-income thresholds for the purposes of the Medicare Levy. The proposed changes are as follows:

  Current threshold (2017/18) Proposed threshold (2018/19)
Singles $21,980 $22,398
Seniors & Pensioners (single) $34,758 $35,418
Families $37,089 $37,794
Seniors & Pensioners (family) $48,385 $49,304
Dependent children $3,406 per child/student $3,471 per child/student

What will it look like going forward?

With all these proposed changes in the works, here’s a snapshot of individual income tax rates going forward under the Government’s current proposals:

Tax Rate* 2017-18 2018-19 to 2021-22 2022-23 to 2023-24 2024 to 2025
0% Nil - $18,200 Nil - $18,200 Nil - $18,200 Nil - $18,200
19% $18,201 - $37,000 $18,201 - $37,000 $18,201 - $45,000 $18,201 - $45,000
30%       $45,001 - $200,000
32.5% $37,001 - $87,000 $37,001 - $90,000^ $45,001 - $120,000  
37% $87,001 - $180,000 $90,001 - $180,000 $120,001 - $180,000  
45% $180,000 plus $180,000 plus $180,000 plus $200,000 plus
LMITO Nil Up to $1,080
LITO Up to $445 Up to $445 Up to $700

*Medicare Levy excluded
^Announced as part of the Government’s 2018-19 Budget.

BDO Comment

Whilst the Government’s pre-election sweetener aims to radically simplify Australia’s income tax system for individual taxpayers, the reality is that Australian taxpayers will need to endure another two election cycles before the benefits of this simplified system are realised. Taxpayers will also need to endure years of confusion around their relevant income tax bracket, and entitlements to the LMITO or LITO before any real clarity is obtained.

We look forward to seeing if any tax cut clarity is actually legislated.

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