The Federal Government’s personal income tax plan containing new tax rates and tax offsets have recently become law. The changes are intended by the Government to stimulate the economy by delivering tax relief for individual taxpayers.
The changes were announced in the 2018-19 Budget and include 3 main measures:
- Changes to taxable income thresholds for Australian tax residents:
- For the income year ended 30 June 2019 and years to 30 June 2022, the top taxable income threshold for the 32.5% income tax rate will increase from $87,000 to $90,000;
- For the income years to 30 June 2023 and 2024, the increases to the top taxable income threshold are as follows;
- The 19% tax bracket from $37,000 to $45,000; and
- The 32.5% bracket from $90,000 to $120,000.
- For the income year 30 June 2025 and onwards, the top taxable income threshold for the 32.5% tax bracket will increase from $120,000 to $200,000.
- A new low and middle income tax offset to reduce the tax payable by low and middle income earners applying from the year ended 30 June 2019;
Australian tax resident individuals whose taxable income does not exceed $126,000 are entitled to the new low and middle income tax offset. The entitlement to the new offset is in addition to the existing low income tax offset and is available on assessment after a person’s income tax return has been lodged. Certain trustees are also entitled to the new rates.
The low and middle income tax offsets are as follows:
- For taxpayers with a taxable income not exceeding $37,000 – $255;
- For taxpayers with a taxable income exceeding $37,000 but not exceeding $48,000 – $255 plus 7.5 per cent of the amount of the taxable income that exceeds $37,000;
- For taxpayers with taxable income exceeding $48,000 but not exceeding $90,000 – $1,080; and
- For taxpayers with taxable income exceeding $90,000 – $1,080 less 3 per cent of the amount of the taxable income that exceeds $90,000.
- A new income tax offset from the income year ending 30 June 2023 (to replace both the new low and middle income tax offset and the current low-income tax offset).
Individuals with a taxable income that does not exceed $66,667 (and certain trustees taxed on behalf of individuals) will be entitled to the new low income tax offset which will be $700 reduced by:
- 5% of the amount by which taxable income exceeds $37,500 up to $45,000; and
- A further 1.5% of the amount for taxable incomes above $45,000.
In summary, the new tax rates*, tax thresholds and offset entitlements for Australian tax residents are as follows:
*Note that these rates do not include the 2% Medicare levy.
Please note the new thresholds and offsets apply retrospectively from 1 July 2018. Individual income tax returns for the year ended 30 June 2019 are affected by the recent law changes (in particular, by the new low and middle income tax offset rates). The Australian Taxation Office will automatically amend individual income tax returns lodged before the enactment of the new law on 5 July 2019 to ensure all entitlements are received.
In addition, the Pay as You Go (PAYG) withholding tax tables have also been updated.