Tax reform creeps ahead
Contrary to some expectations, this week the Tax Laws Amendment (Personal Income Tax Plan) Act 2018 was passed by the Senate, and received Royal Assent. The Act seeks to reduce the tax burden on individual taxpayers with a phased plan to reduce personal tax rates over the next 7 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 The resulting tax reduction broadly equates to the maximum LMTO amount, and will therefore allow the LMTO to be withdrawn.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 & future income tax rises
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.
Tags Tax reform