Read: Access full Federal Budget 2018-19 review here
Changes to personal income tax rates
Tax changes over a seven-year plan
The Government has announced a number of measures that seek to reduce personal income tax in three stages over the next seven years.
During this period changes will apply from 1 July 2018 to 30 June 2022. The Government will introduce a new non-refundable Low and Middle Income Tax Offset (LMITO) designed to provide tax relief of up to $530 for taxpayers earning up to $90,000. The offset phases out from $90,001 to $125,333. This offset will be in addition to the existing Low Income Tax Offset (LITO).
The Government will also increase the upper threshold of the 32.5% tax bracket from $87,000 to $90,000.
Changes in this stage will take place from 1 July 2022, and involve increasing the LITO from $445 to $645, extending the upper threshold of the 19% tax bracket from $37,000 to $41,000, and further increasing the upper threshold of the 32.5 % tax bracket from $90,000 to $120,000.
The final stage will involve a further increase in the upper threshold of the 32.5% tax bracket to $200,000 from 1 July 2024, removing the 37% tax bracket completely. For taxable incomes exceeding $200,000, taxpayers will pay the top marginal tax rate of 45% (excluding the 2% Medicare Levy).
Tax rates and thresholds for 2018-19 onwards
The table below summarises the announced personal tax rate and threshold changes (excluding the 2% Medicare Levy).
Medicare Levy to remain at 2%
The Government had previously proposed to increase the Medicare Levy from 2% to 2.5% from 1 July 2019 to help finance the NDIS. However, citing an improving economy and fiscal position, the Government has decided not to proceed with this.
Medicare Levy low-income thresholds for 2017-18
For the 2017-18 income year, the Medicare Levy low-income threshold for singles will be increased to $21,980 (up from $21,655 in 2016-17). For couples with no children, the family income threshold will be increased to $37,089 (up from $36,541 in 2016-17). For each dependent child or student the family income threshold will increase by $3,406 (up from $3,356 in 2016-17).
For single seniors and pensioners eligible for the Seniors & Pensioners Tax Offset, the Medicare Levy low-income threshold will be increased to $34,758 (up from $34,244 in 2016-17). The family threshold for seniors and pensioners will be increased to $48,385 (up from $47,670), plus $3,406 for each dependent child or student.
Increased compliance activities
The Government will provide $130.8 million to the ATO from 1 July 2018 to increase compliance activities targeting individuals and their tax agents. This measure is a response to specific compliance issues for individual taxpayers previously identified by the ATO including incorrect reporting of foreign source income and over-claiming of deductions.