What do the latest income tax reductions mean?
In the 2019 Federal budget, changes were legislated to reduce personal income taxes over the next seven years and this will occur in three stages. The first change relates to the 2018/2019 tax year with the introduction of the Low and Middle Income Tax Offset (LMITO). Taxpayers with a taxable income between $48,000 and $90,000 will receive an offset of $1,080; adjusted amounts apply to incomes outside these amounts.
This offset will cease to apply from 1 July 2022 when the second stage of the changes that relate to income tax thresholds will come into effect. The upper threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000 and the upper threshold for the 32.5% bracket will increase from $90,000 to $120,000; also, the Low Income Tax Offset (LITO) will go up from $445 to $700.
The third stage comes into effect from 1 July 2024; the 32.5% tax rate will reduce to 30% whilst the threshold will increase to $200,000. The 37% tax rate will no longer apply with incomes over $200,000 attracting a rate of 45%. Legislation is already in place to amend the tax rate changes for non-resident individuals and holiday workers and will come into force from 1 July 2022, with further adjustments from 1 July 2024.
Additional changes are due in the 2022/2023 and 2024/2025 tax years; however, with one more federal election due before 2024/2025 and if there is a change of government, there may be legislated changes made before the future tax adjustments actually apply. Should you have any questions about the changes, and how they will affect you, please contact our office.