Article:

The New PAYG Tax Tables – Practical implications for Employers

26 October 2016

Stephanie Sims |

Personal income tax relief

In the May Budget the Federal Government announced changes to individual tax rates for the 2016-17 income year, in an effort to provide personal income tax relief to the average income earner.The change aims to address ‘bracket creep.’ As wages increase, more employees start paying tax in the higher tax brackets and extra payments such as overtime and bonuses therefore also get taxed at the higher rate, reducing their take-home pay.  To help encourage workforce participation and to strengthen the post-mining economy, instead of simply increasing the tax-free threshold, the third tax bracket was targeted to specifically help the middle income employees who found themselves being pushed into the higher tax bracket. By stretching the upper limit of the bracket, more individuals can stay within the lower bracket for a longer period of time.

From 1 July 2016, for both resident and non-resident individuals, the marginal tax rate of 37 per cent will apply at $87,000 instead of $80,000 previously. For individuals earning over $80,000, their savings will range from $45 to $315 per year.

Updated tax tables as at 1 July 2016

Australian Resident Individuals
Taxable Income bracket ($) Tax ($)(excluding Medicare Levy)
0 – 18,200 0
18,201 – 37,000 19c for each $1 over $18,200
37,001 – 87,000 3,572 plus 32.5c for each $1 over 37,000
87,001 – 180,000 19,822 plus 37c for each $1 over 87,000
180,001 & over 54,232 plus 47c* for each $1 over 180,000
Australian Non-Resident Individuals
Taxable Income bracket ($) Tax ($)
0 – 87,000 32.5c for each $1
87,001 - 180,000 28,275 plus 37c for each $1 over
180,001 & over 62,685 plus 47c* for each $1 over 180,000

*Note the $180,000 & over rate includes the 2% Temporary Budget Repair Levy, which is expected to be removed from 1 July 2017.

Pay-as-you-go withholding

From 1 October 2016, for those individuals earning over $80,000, employers will reduce the amount of tax being withheld from their salary. The ATO has recommended there be no catch-up adjustment for the portion of the year which has already passed. Individuals affected will receive the full benefit of the tax changes upon assessment of their 2016-17 income tax return.

Employers

The practical implications of updating payroll software to reflect these changes, as well as notifying affected employees of the impact of these new tax rates, should be undertaken as soon as possible.