The Turnbull Government's seven-year Personal Income Tax Plan will provide tax relief to encourage and reward working Australians, starting with low and middle income earners, meaning more working Australians will pay lower taxes.
This fully funded tax relief, achieved while bringing the Budget back into balance, will target tax relief for low and middle income earners first, help ensure that incomes earned by Australians are protected from 'bracket creep' and make personal taxes simpler and flatter.
Our plan will work to incentivise and reward hard work.
It will be delivered in three steps:
Step 1
- Targeted tax relief to low and middle income earners, encouraging and rewarding working Australians and reducing cost pressures on households. A new non-refundable low and middle income tax offset will provide tax relief of up to $530 to low and middle income earners every year from 2018-19 to 2021-22.
- The offset will be delivered on assessment after an individual submits their tax return and is in addition to the existing low income tax offset. This is projected to assist over 10 million Australians, and around 4.4 million people will receive the full $530 benefit for 2018-19.
Step 2
- Will increase the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000 from 1 July 2018, providing a tax cut of $135 per year to around 3 million people. This will prevent more middle income earners from being pushed from the 32.5 per cent tax bracket into the second highest tax bracket of 37 per cent.
- In 2022-23, to lock in the tax relief for low and middle income earners from the new offset, the Government will increase the top threshold of the 19 per cent tax bracket from $37,000 to $41,000 and increase the low income tax offset from $445 to $645.
- Tax relief of up to $1,350 per year will be provided by further increasing the top threshold of the 32.5 per cent tax bracket from $90,000 to $120,000 from 1 July 2022. This tax cut is projected to stop around 1.8 million taxpayers facing the 37 per cent tax rate in 2022-23, keeping them in the 32.5 per cent tax bracket.
Step 3
- Will ensure more Australians pay less tax and make personal taxes simpler and flatter. Under this final step, 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 per cent tax bracket completely.
The plan means that around 94 per cent of all taxpayers are projected to face a marginal tax rate of 32.5 per cent or less in 2024-25. This compares with a projected 63 per cent of taxpayers in 2024-25 under current settings without change.
By providing tax cuts in stages, the Government is prioritising tax relief to low and middle income earners to help them with cost of living pressures while being fiscally responsible.
Without these changes, the personal income tax system would increasingly penalise more Australians for earning more as they move into higher tax brackets.
These changes demonstrate the Turnbull Government's commitment to taxes that are lower, fairer and simpler.