Personal income tax proposed to 2022
A seven-year personal income tax 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% tax bracket.
Low and middle income tax offset
A low and middle income tax offset (LAMITO) will be introduced as a non-refundable tax offset of up to $530 per annum to resident low and middle income taxpayers from 2018/19 to 2021/22.
The LAMITO 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 income from $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.
This offset will be received as a lump sum on assessment after an individual lodges their tax return. It will run in addition to the existing low income tax offset.
Middle income relief from bracket creep
From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased from $87,000 to $90,000.
From 1 July 2022, the low income offset will be increased from $445 to $645 in accordance with the removal of LAMITO. The increased low income offset will be phased out at a rate of 6.5 cents per dollar for incomes between $37,000 and $41,000. The remaining $385 low income offset will then be phased out at 1.5 cents per dollar for income between $41,000 and $66,667.
The change in the low income tax offset will run in conjunction with a change in the middle income brackets. The top of the 19% tax bracket will increase from $37,000 to $41,000, and the top of the 32.5% tax bracket will increase again from $90,000 to $120,000. These brackets are due to change from 1 July 2022.
Removing the 37% tax bracket
The 37% income tax bracket will be removed from 1 July 2024.
From 1 July 2024, the top threshold for the 32.5% tax bracket will increase from $120,000 to $200,000. Taxpayers will pay the top marginal tax rate of 45% for taxable incomes exceeding $200,000, and the 32.5% bracket will apply from $41,000 to $200,000.
Information sourced using CCH iknow