Nearly all taxpayers will pay no more than 30 cents in the dollar, under a Government plan to widen the tax bracket for middle-income earners.
From 1 July 2024, the tax bracket will expand to include those earning between $45,000 and $200,000 with a drop of 2.5 per cent in the marginal tax rate to 30 per cent.
The change to the top threshold will prevent around 590,000 taxpayers from entering a higher tax bracket.
As previously announced, from 2022/23 the Government will increase the top threshold of the 19 per cent tax bracket from $41,000 to $45,000 and the low-income tax offset will extend to $700 from $645.
From 2024 the 37 per cent tax bracket will be abolished and the top marginal rate of 45 per cent will apply to taxable incomes above $200,000.
There will be immediate tax relief for low and middle-income earners with the low-to middle-income tax offset (LMITO) of up to $1,080 for single earners and up to $2,160 for dual income families for Australians earning between $48,000 and $90,000.
“This relief will flow quickly and be available to Australians after tax returns for the 2018-19 year are submitted in 13 weeks’ time,” Frydenberg says.
The value of the LMITO increases at a rate of 7.5 cents per dollar for taxable incomes between $37,000 and $48,000, to the maximum offset of $1,080.
The LMITO will provide a tax reduction of up to $255 for people with incomes less than $37,000 and for those earning between $90,000 to $126,000, the offset will phase out at a rate of 3 cents per dollar.
Tax partner at HLB Mann Judd Sydney Peter Bembrick, says: “It’s a well targeted approach with tax offset relief to the lower ends and there is quite a bit of relief for middle income earners as well. Everybody will benefit and what will be interesting to see is what sort of cuts Labor will announce and how they target it.”
The budget papers show that by 2024/25 around 60 per cent of all personal income tax will be paid by the highest earning 20 per cent of taxpayers.
“There is an immediate impact but there will be a delayed economic impact. We hear a lot of negative stories about the economy and the housing market, so we wonder what consumer confidence is like and we will have to wait and see how much of a difference this will make,” Bembrick says.
The current Medicare Levy Surcharge for 2018/19 is an additional tax between 1 and 1.5 per cent. The Government announced a slight increase in the income threshold bracket for the levy.
Singles can now earn $22,389 which is up from $21,980 and the threshold for families is $37,794 from $37,089. The family threshold for seniors and pensioners will be increased to $49,304 from $48,385. For each dependent child or student, the family income thresholds increase by a further $3,471 which is a $65 increase.
says: “Following these changes, our tax system will remain highly progressive.”