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Tax reform creeps ahead

Tax reform creeps ahead

Mardi Heinrich outlines the Government's latest changes to personal income tax rates.

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Partner, Expatriate Tax

KPMG Australia

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Contrary to some expectations, the Tax Laws Amendment (Personal Income Tax Plan) Act 2018 was passed by the Senate, and received Royal Assent on 21 June 2018. The Act seeks to reduce the tax burden on individual taxpayers with a phased plan to reduce personal tax rates over the next seven years. 

This will go some way towards counteracting the consequences of ‘bracket creep’, where wage inflation can otherwise gradually cause the tax burden on real wages to increase.

Changes from 1 July 2018 are set to be of most significant benefit to low and medium income earners through the introduction of a Low and Middle Income Tax Offset (LMTO) of up to $530 per year, which will initially be available as a lump sum offset upon issuance of the individual’s Notice of Assessment.

From 1 July 2022, the bracket at which the 19 percent tax rate applies will be extended by $4,000 to cover taxable income up to $41,000. The resulting tax reduction broadly equates to the maximum LMTO amount, and will therefore allow the LMTO to be withdrawn.

The Act also increases the threshold at which the 37 percent bracket applies from $87,000 to $90,000 from 1 July 2018. The Act includes a further increase in this threshold to $120,000 from 1 July 2022. 

From 1 July 2024, the 37 percent bracket will be removed entirely. The top threshold of the 32.5 percent rate will increase to $200,000, and individuals will pay the top marginal rate of 45 percent on taxable income exceeding $200,000.

Current and future income tax rates

Rate (%) 2017-18 ($) 2018-19 ($) 2022-23 ($) 2024-25 ($)
0 0–18,200 0–18,200 0–18,200 0–18,200
19 18,201–37,000 18,201–37,000 18,201–41,000 18,201–41,000
32.5 37,001–87,000 37,001–90,000 41,001–120,000 41,001–120,000
37 87,001–180,000 90,001–180,000 120,001–180,000
45 >180,000 >180,000 >180,000 >200,000
Low and Middle 
Income Tax Offset
Up to 530

Low Income
Tax Offset
Up to 445 Up to 445 Up to 645 Up to 645

Changes to personal tax rates and thresholds are only one part of the picture in building a tax system which can support the country’s future needs in terms of investment, productivity, social cohesion and public services. As we progress towards the next federal elections, the time is ripe for debate about the strategic vision for our tax system.

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