News & Information

The 2018-19 Budgets 3 Step Plan: “Lower, fairer and simpler taxes”

July 06, 2018

If you’ve been keeping up with the news lately you may have noticed the chatter around the new 2018-19 budget.  The Australian government is currently in the midst of building a personal tax system that is aimed at helping residents of this country get ahead in life all the while being fiscally responsible. Or better yet, to give Australians some tax relief.

The Personal Income Tax Plan will be delivered in three steps.  The first steps will provide tax relief to low and middle income earners, the second step will help tackle the ongoing matter of bracket creep and the last step will hope to simplify and flatten the Australian tax system.

Below is a brief of the three step plan.

Step 1: Immediate tax relief for low and middle income earners

This first step will deliver tax relief to low and middle income earners to help out with the ongoing cost of living pressures.  It is intended to take effect 1 July 2018 and will apply until 30 June 2022, a total four year period. This Low and Middle Income Tax Offset, also referred to as ‘LAMITO’ will be applicable for Australians with a taxable income of less than $90,000 a year.  It will provide a tax relief of up to $530 to those low and middle income earners for the 2018-19, 2019-20, 2020-21 and 2021-22 financial years.  This new tax offset is said to assist over 10 million Australians with 4.4 million of those receiving the full $530 benefit for the 2018-19 income year.  The benefit will continue alongside the existing Low Income Tax Offset, and will be available to Australians upon assessment after a taxpayer lodges their tax return.

Step 2: Protection against bracket creep

The second step of the three step plan hopes to expand tax relief to help protect middle income earners from bracket creep. For your understanding, bracket creep is a higher tax rate that gets applied to an individual as a result of an increase in their income or incomes.

From 1 July 2018 the Government will provide a tax cat of up to $135 per year by increasing the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000.  This is intended to apply to nearly 3 million people.

When the low and middle income tax offset comes to an end in 2021-22, the benefits will be locked in by increasing the top threshold of the 19 per cent tax bracket from $37,000 to $41,000.  There will then come an increase in the low and middle income tax offset from $445 to $645 effective 1 July 2022.

Furthermore, from 1 July 2020 the top threshold of the 32.5 per cent tax bracket will be increased from $90,00 to $120,000, which will provide a tax cut of up to $1,350 per year.

Step 3: Making personal taxes simple and flatter

The third step and final step of the Governments Personal Income Tax Plan aims at making the tax system simpler allowing Australians to pay less in tax.

From 1 July 2024, the Government will increase the top threshold of the 32.5 per cent tax bracket from $120,000 to $200,000, removing the 37 percent tax bracket completely. This initiative means that around 94 per cent of all tax payers are projected to face a marginal tax rate of 32.5 per cent or less in 2024-25.

The Government hopes that these changes will bring forth a tax system that is internationally competitive, one that rewards efforts, and one that supports a strong economy.