Personal Income Tax Cuts

Note: this article appeared originally as part of the 2019 Federal Budget Response

In a pre-election sweetener, the Coalition has built further on their Personal Income Tax Plan measures originally released in the 2018-19 Budget. The Government’s multi-faceted approach aims to reduce cost of living pressures and simplify the individual income tax system for everyday Australians.

Non-refundable low and middle income tax offset (LMITO)

The Government’s first measure seeks to reduce tax on individuals by increasing the LMITO over the next four income years as follows:

Taxable Income band (TI)	LMITO – currently proposed	LMITO – currently legislated
Nil - $37,000	$255	$200
$37,001 - $48,000	$255 + ([TI - $37,000] x 7.5%)	$200 + ([TI - $37,000] x 3%)
$48,001 - $90,000	$1,080	$530
$90,001 - $125,999	$1,080 – ([T1 - $90,000] x 3.0%)	$530 – ([T1 - $90,000] x 1.5%)
$126,000 plus	Nil	Nil

Under the Government’s proposal, taxpayers can expect to receive their first LMITO following lodgement of their 2019 Income Tax Return. Going forward, this measure seeks to provide taxpayers with a benefit as they lodge their Income Tax Returns from 1 July 2019.

Tax brackets get cut

In addition, the Government intends to reduce the current 32.5% marginal income tax rate to 30% from 1 July 2024. In conjunction with the measures announced by the Government during the 2018-19 Budget, these measures seek to align the middle income tax bracket for individuals with corporate income tax rates, thereby improving incentives for working Australians.  

The cumulative impact of these measures is expected to result in the following:

2017/18 Thresholds	2017/18 Tax Rates	2024/25 Tax Rates	2024/25 Thresholds
Nil - $18,200	0%	0%	Nil - $18,200
$18,201 - $37,000	19%	19%	$18,201 - $45,000
$37,001 - $90,000	32.5%	30%	$45,001 - $200,000
$90,001 - $180,000	37%	37% bracket removed
$180,000 plus	45%	45%	$200,001 plus

Low Income Tax Offset (LITO)

The Government’s proposed changes to the existing tax brackets will also operate to give low income earners an increased $55 maximum benefit from the previously planned offset. This is expected to take effect from 1 July 2022.

Further, under the Government’s initiative, the LITO will be recovered at a lower rate of 5 cents per dollar for taxable incomes between $37,500 and $45,000 and an additional 1.5 cents per dollar from taxable incomes between $45,001 and $66,667. This was originally intended to be recovered at a rate of 6.5 cents per dollar for the taxable income bracket between $37,000 and $41,000 and 1.5 cents per dollar for the $41,001-$66,667 bracket.

2018-19 to 2021-2022		2022-23 Onwards
Taxable Income (TI)	LITO	Taxable Income (TI)	Updated LITO
$0-$37,000	$445	$0-$37,500	$700
$37,001-$66,666	$445–([TI-$37,000]x1.5%)	$37,501-$45,000	$700-([TI-$37,500]x5%])
$66,667+	$Nil	$45,001-$66,667	$325-([TI-$45,000]x1.5%])
		$66,667+	$Nil

Medicare Levy Thresholds Increased

Finally, the Government has announced proposed increases to the low-income thresholds for the purposes of the Medicare Levy. The proposed changes are as follows:

	Current threshold (2017/18)	Proposed threshold (2018/19)
Singles	$21,980	$22,398
Seniors & Pensioners (single)	$34,758	$35,418
Families	$37,089	$37,794
Seniors & Pensioners (family)	$48,385	$49,304
Dependent children	$3,406 per child/student	$3,471 per child/student

What will it look like going forward?

With all these proposed changes in the works, here’s a snapshot of individual income tax rates going forward under the Government’s current proposals:

Tax Rate*	2017-18	2018-19 to 2021-22	2022-23 to 2023-24	2024 to 2025
0%	Nil - $18,200	Nil - $18,200	Nil - $18,200	Nil - $18,200
19%	$18,201 - $37,000	$18,201 - $37,000	$18,201 - $45,000	$18,201 - $45,000
30%				$45,001 - $200,000
32.5%	$37,001 - $87,000	$37,001 - $90,000^	$45,001 - $120,000
37%	$87,001 - $180,000	$90,001 - $180,000	$120,001 - $180,000
45%	$180,000 plus	$180,000 plus	$180,000 plus	$200,000 plus
LMITO	Nil	Up to $1,080
LITO	Up to $445	Up to $445	Up to $700

*Medicare Levy excluded
^Announced as part of the Government’s 2018-19 Budget.