Australia’s three-step personal tax plan for the future

As one of the first actions of the new financial year, a new tax law was recently enacted that will:

• increase the low & middle-income tax offset (LMITO) available for individuals (with retrospective effect from 1 July 2018) – Stage 1;

• increase the low-income tax offset (LITO) & raise tax brackets for individuals (with prospective effect from 1 July 2022) – Stage 2; and

• flatten tax brackets for individuals (with prospective effect from 1 July 2024) – Stage 3.

The 3 stages of the plan are set out in the timeline below:

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As you can see, only the stage 1 changes are immediately relevant (i.e. stage 2 changes only kick in from 1 July 2022 and stage 3 changes only from 1 July 2024).

Stage 1: Increase in LMITO from 1 July 2018 to 30 June 2022

A tax offset reduces the amount of income tax a taxpayer has to pay for an income tax year and is subtracted from the taxpayer’s basic income tax liability that was worked out by multiplying the taxpayer’s taxable income with the applicable tax rate.

From 1 July 2018 to 30 June 2022 the new rates for the LMITO are:

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Note, taxpayers that lodged their 2019 income tax return before these Stage 1 changes became law (i.e. before 5 July 2019 – and therefore based on the old LMITO numbers) will not need to amend their assessment because the ATO will automatically calculate the offset correctly.

Stage 2: Increase in LITO & raise tax brackets from 1 July 2022 to 30 June 2024

For 2019 up to 2022, the LITO rates remain the same as set out in the table below:

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Up to 30 June 2022, eligible taxpayers can claim both the LMITO and LITO. However, from 1 July 2022, the LMITO will no longer be available and only a new LITO will be available (see below).

From 1 July 2022 the new LITO will be as follows:

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From 1 July 2022, the upper 19% and 32.5% tax brackets will also be raised to $45,000 and $120,000 respectively (see table below).

Stage 3: Flatten tax brackets from 1 July 2024

From 1 July 2024 (yes, about five years away), the amount of tax brackets will be reduced to only four by replacing the 32.5% and 37% bracket with a 30% bracket – thereby arguably simplifying the tax system.

The diagram below visually depicts the four tax brackets.

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See the table below incorporating Stage 2 and Stage 3 tax brackets changes.

How can Findex help you?

We trust you found this tax snapshot useful to keep you up to date on recent tax developments (although Stage 2 and 3 changes are well into the future).

If your taxable income is $126,000 or less, the most relevant change for you is the Stage 1 changes to the LMITO because the changes apply retrospectively from 1 July 2018.

For completeness, we have set out a comparative table below highlighting the changes in tax rates through to 2025 onwards:

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If anything in this tax snapshot triggered your interest or you are a type of taxpayer that may need tax assistance, please contact your Findex adviser. Let Findex help you review your situation to ensure you are compliant with all your tax obligations.

We have considerable experience advising on a variety of tax issues that may be relevant for you or your business and look forward to discussing other ways we may be able to assist. After all, your story is our business.

Through our Tax Advisory team across Australia, we can help you identify potential opportunities that may be available for you or your business while at the same time help you to manage your exposure to different risks.

Our Family Office model means regardless of your location or service offering of your primary adviser, we can access the right Tax Advisory expertise for you.