Income tax rate cuts pass Parliament

The income tax cuts outlined in the 2019-20 Federal Budget have passed the Senate – including the controversial ‘third wave’ that reduces the tax rate for incomes up to $200,000 to 30% from 2024.

Supported by Senator Jacqui Lambie and the Centre Alliance, the amending legislation passed without amendment. 

While debate has raged about the narrowing of the tax brackets in 2024, there is an election and a number of Budgets before we get to that point. There are no guarantees that the tax cuts will come to fruition.

Personal income tax cuts

The personal tax changes mean a tax saving of $855 for someone on an annual taxable income of $45,000 per annum until 2022, then $1,080 until 2024 onwards (check the tax relief calculator).

Tax thresholds
Tax rateFrom 1 July 2018From 1 July 2022From 1 July 2024
0%$0 – $18,200$0 – $18,200$0 – $18,200
19%$18,201 – $37,000$18,201 – $45,000$18,201 – $45,000
30% $45,001 – $200,000
32.5%$37,001 – $90,000$45,001 – $120,000 
37%$90,001 – $180,000$120,001 – $180,000
45%>$180,000>$180,000>$200,000
LMITOUp to $1,080 
LITOUp to $445Up to $700Up to $700

This round of tax cuts:

  • Increases the top threshold of the 19% personal income tax bracket to $45,000 from 1 July 2022
  • Reduces the 32.5% marginal tax rate to 30% from 1 July 2024-25

Low and middle income tax offset increased

From 2018-19 until 2021-22, the low and middle income tax offset (LMITO) has increased from a maximum amount of $530 to $1,080 per annum and the base amount increased from $200 to $255 per annum.

The LMITO provides a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less. Between taxable incomes of $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080. From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

The LMITO is received after the individual has lodged their tax return.

Low income tax offset increased

From 1 July 2022, the Government will increase the low income tax offset (LITO) from $645 as legislated, to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000, instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as previously legislated under the plan. LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

This package revises the previously legislated seven year income tax plan.

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