Who gets the tax cuts from 1 July?
1 July 2018 is the start date for the seven year income tax plan announced in the recent 2018-19 Federal Budget. The seven year plan benefits low and middle income earners in the first few years before expanding out to give most people a benefit.
From 2018-19, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000. Dovetailing into the tax bracket change is the introduction of the Low and Middle Income Tax Offset for those with taxable incomes up to $125,333. The offset is a non-refundable tax offset that you receive when you lodge your income tax return (meaning it will decrease overall tax payable but not to the point that the ATO will refund it to you).
If your annual taxable income is $80,000 in 2018-19, then the personal income tax changes provide an annual tax reduction of $530 per year. If your annual taxable income is $120,000, then the changes give you an annual tax reduction of $215.
The legislation enabling the personal income tax cuts and the new tax offset is not yet law and is currently before the Senate – so don’t start spending the tax savings just yet.
Assuming the legislation comes into effect (and is not removed by a subsequent change in government), further changes are planned from 1 July 2022 culminating in the removal of the 37% tax bracket from 1 July 2024. This basically means that you will be able to earn more before creeping into a higher tax bracket.
Ken Burk, Partner, Paris Financial