Technical Update:

Personal Tax Cuts Pass Parliament

08 July 2019

The Government has used its first week back in a new Parliament, to pass its complete package of individual tax cuts, the centrepiece of both its re-election platform and plan on keeping the Australian economy on track.

Personal Tax Cuts Package Pass Parliament

On 4 July 2019 the Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 (Bill) passed all stages of Parliament without amendment, followed by Royal Assent on 5 July 2019 as Act No 52 of 2019. The Bill fully implements the personal tax cuts measures announced in this year's 2019-20 Federal Budget. Please refer to the Appendix for a summary of the changes to the individual income tax rates and thresholds.

2018/19 tax return refunds

Millions of taxpayers will receive between $255 and $1,080 in tax cuts for the 2018-19 financial year, which will appear automatically in their bank accounts as part of their refund after they lodge their 2018-19 tax return. The ATO have already begun processing 2018–19 tax returns, so taxpayers eligible for the offset can expect to see the additional credits from 16 July 2019, the official date that the ATO expects to start paying refunds. On 5 July 2019, the ATO advised that its systems will be updated once the Bill receives Royal Assent and that they will automatically include any new offset amounts taxpayers are entitled to when tax returns are processed.

BDO Comment

There has been a significant slowing in wage growth in Australia over the past five years with average annual growth decreasing from 3.3 per cent in 2013 to 2.2 per cent in 2018. The Government is hopeful that the combined effect of its instant tax cuts and consecutive interest rate reductions to a record 1 per cent is the economic stimulus required to increase consumption rates, drive retail sales, create new jobs and help Australians pay off mortgages faster. While the Federal Government is confident that it can lower taxes and still maintain a budget surplus, if the Australian economy succumbs to global economic slowdown it may need to choose between maintaining the push to budget surplus and providing a much-needed stimulus for the Australian economy.

As the Governor of the Reserve Bank has been saying for some time, he has very little room left to move to stimulate the economy by reducing interest rates any further, therefore the Government needs to use fiscal policy to stimulate the economy. While the income tax reductions are a good start, additional spending on productive infrastructure may also be required. The Government should also commit to more structural tax reform that will make the collection of taxes more efficient and equitable. While tax cuts are fiscally quick and politically easy, they should not be confused with real tax reform.

Appendix

Tax Cuts in Detail

Below is an ATO summary of the individual tax cuts that passed through Parliament on 4 July 2019.  

From the 2018–19 income year:

  • Increase the low and middle income tax offset from a maximum amount of $530 to $1,080 per annum and increase the base amount from $200 to $255 per annum
  • Taxpayers with a taxable income that does not exceed $37,000 will receive a low and middle income tax offset of up to $255
  • Taxpayers with a taxable income that exceeds $37,000 but is not more than $48,000 will receive $255, plus an amount equal to 7.5 per cent to the maximum offset of $1,080
  • Taxpayers with a taxable income that exceeds $48,000 but is not more than $90,000 will be eligible for the maximum low and middle income tax offset of $1,080
  • Taxpayers with a taxable income that exceeds $90,000 but is not more than $126,000 will be eligible for a low and middle income tax offset of $1,080, less an amount equal to 3 per cent of the excess.

From the 2022–23 income year:

  • The top threshold of the 19 per cent personal income tax bracket will increase from $41,000 to $45,000 such that the rate of tax on the amount of the taxable income of a resident individual that:    
    • exceeds $18,200 but is not more than $45,000 is 19 per cent
    • exceeds $45,000 but is not more than $120,000 is 32.5 per cent
    • exceeds $120,000 but is not more than $180,000 is 37 per cent
    • exceeds $180,000 is 45 per cent
  • Increase the low income tax offset (LITO) from a maximum amount of $645 to $700 per annum
  • Taxpayers with a taxable income that does not exceed $37,500 will receive a LITO of $700
  • Taxpayers with a taxable income that exceeds $37,500 but is not more than $45,000 will receive a LITO of $700, less an amount equal to 5 per cent of the excess
  • Taxpayers with a taxable income that exceeds $45,000 but is not more than $66,667 will receive a LITO of $325, less an amount equal to 1.5 per cent of the excess.

From the 2024–25 income year:

  • The 32.5 per cent marginal tax rate will reduce to 30 per cent such that for a resident individual the rate of tax on the amount of their taxable income that:    
    • exceeds $18,200 but is not more than $45,000 is 19 per cent
    • exceeds $45,000 but is not more than $200,000 is 30 per cent
    • exceeds $200,000 is 45 per cent.