A seven-year Personal Income Tax (PIT) Plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37 per cent PIT bracket.
This measure builds on the 2016-17 Budget measure that extended the 32.5 per cent PIT bracket from $80,000 to $87,000 from 1 July 2016.
A low and middle income tax offset (LMITO) will be introduced as a non-refundable tax offset of up to $530 pa to resident low and middle income taxpayers from 2018-19 to 2021-22.
The LMITO will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. For taxable incomes between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. For taxpayers with taxable incomes from $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.
The LMITO will be received as a lump sum on assessment after an individual lodges their tax return. The benefit of the LMITO is in addition to the existing low income tax offset.
Middle income taxpayers will be provided relief for bracket creep in phases.
From 1 July 2018, the top threshold of the 32.5 per cent PIT bracket will be increased from $87,000 to $90,000.
From 1 July 2022, the low income tax offset will be increased from $445 to $645, and the 19 per cent PIT bracket will be increased from $37,000 to $41,000 to lock in the benefits of the LMITO in Step 1. The increased low income tax offset will be withdrawn at a rate of 6.5 cents per dollar for incomes between $37,000 and $41,000, and at a rate of 1.5 cents per dollar for incomes between $41,000 and $66,667.
From 1 July 2022, the top threshold of the 32.5 per cent PIT bracket will be further increased from $90,000 to $120,000.
Step 3: Removing the 37 per cent personal income tax bracket
The 37 per cent PIT bracket will be removed from 1 July 2024.
From 1 July 2024, the top threshold of the 32.5 per cent PIT bracket will be increased from $120,000 to $200,000. Taxpayers will pay the top marginal tax rate of 45 per cent for taxable incomes exceeding $200,000, and the 32.5 per cent PIT bracket will apply to taxable incomes of $41,001 to $200,000.
Source: Budget Paper No 2, pp 33-34; Treasurer’s media release “Tax relief for working Australians, low and middle income earners first”, 8 May 2018; and Budget 2018-19 Glossy: Stronger growth to create more jobs, p 11.
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