Lower, fairer and simpler taxes

Personal Income Tax Plan

The Government is building a personal tax system that encourages aspirational Australians to get ahead while being fiscally responsible. The first step will provide tax relief to low and middle income earners, the second step will help tackle bracket creep and the third step will simplify and flatten the system. Together our reforms to company taxes, tax integrity and personal income taxes will build a simpler tax system, reward hardworking Australians and drive a stronger economy.

The plan will be delivered in three steps

Step 1: immediate tax relief for low and middle income earners

The first step will deliver tax relief to low and middle income earners to help with cost of living pressures.

The low and middle income tax offset will provide tax relief of up to $530 to low and middle income earners for the 2018-19, 2019-20, 2020-21 and 2021-22 income years. The offset will assist over 10 million Australians and around 4.4 million people will receive the full $530 benefit for 2018-19. The benefit is in addition to the existing low income tax offset, and will be available on assessment after a taxpayer lodges their tax return.

Step 2: protecting against bracket creep

The second step expands tax relief to help protect middle income earners from bracket creep.

From 1 July 2018, the Government will provide a tax cut of up to $135 per year to around 3 million people by increasing the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000.

When the low and middle income tax offset concludes in 2021-22, the benefits will be locked in by increasing the top threshold of the 19 per cent tax bracket from $37,000 to $41,000 and increasing the low income tax offset from $445 to $645 from 1 July 2022.

From 1 July 2022 the top threshold of the 32.5 per cent tax bracket will be increased from $90,000 to $120,000, providing a tax cut of up to $1,350 per year.

Step 3: making personal taxes simpler and flatter

The third step finalises the Government's plan for more Australians to pay less tax by making the system simpler.

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 without change to current settings.

An affordable, responsible plan

From
2018-19

Lower taxes for low and middle income earners first

With over 10 million low and middle income Australians receiving up to $530 in tax relief for the 2018-19 income year

From
2022-23

Fairer system by tackling bracket creep.

Rewarding effort and aspiration by low and middle income earners

From
2024-25

Simpler system over the medium-term.

Abolishing the 37 per cent tax bracket and maintaining the highest marginal tax rate at a similar multiple of average earnings

 

A competitive tax system

The Government is building a tax system that is internationally competitive, rewards effort, and underpins a strong economy.

Without sensible tax relief, we risk entering the next decade with a tax system that not only holds Australians back, but puts at risk a stronger economy that can fund our essential services.

We have a progressive income tax system in Australia, but we cannot push this to breaking point and excessively tax a smaller group of taxpayers without paying a heavy price. Penalising Australians for earning more will not create a stronger economy over the next decade. The Government supports a progressive tax system that sustains economic growth and rewards effort.

To build a stronger economy – to create jobs and guarantee the essential services that Australians rely on – we must ensure the tax system does not act as a drag on growth and aspiration. There must be reward for effort and incentive to get ahead.

As outlined in the ATO taxation statistics, the personal income tax burden is carried by the few, not the many.

In 2015–16, the top one per cent of taxpayers paid around 17 per cent of the $186 billion of personal income tax. The top 10 per cent paid around 45 per cent of this total, compared with around 36 per cent 20 years earlier.

Share of personal tax paid, median tax paid and number of taxpayers by taxable income range, 2015-16

Share of personal tax paid, median tax paid and number of taxpayers by taxable income range, 2015-16

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Source: Australian Taxation Office, Taxation Statistics, 2015-16, Individuals Table 10A and unpublished personal income tax data.

Note: In this context, a personal income taxpayer is someone who lodged a tax return and paid more than $0 in personal income tax for the year, for tax returns lodged by 31 October, 2017. Percentages may not add to 100% due to rounding.

 

Lower, fairer and simpler taxes

Our tax system must be fair for all Australians, one that rewards effort and fosters aspiration.

To build a strong economy, it is vital that workers are rewarded rather than penalised for their effort by our tax system.

Given personal income tax accounts for over half of the Government's tax revenue, it is imperative to get the settings right and build a better tax system while being fiscally responsible.

The tax burden borne by workers has continued to rise. Bracket creep reduces the rewards for effort, undermines the returns to quality education, and blunts the incentive to work hard, take risks, and succeed.

There were 2.4 million Australians with taxable incomes above $87,000 in 2015-16, representing 23 per cent of taxpayers, but paying 65 per cent of personal income tax.

The Government's seven-year Personal Income Tax Plan will improve incentives to strive for success.

Step one: provide tax relief to low and middle income earners to help with cost of living pressures.

Step two: combat bracket creep.

Step three: simplify and flatten the system by removing the 37 per cent tax bracket completely, protecting middle income Australians from bracket creep over their working life.

The plan delivers a tax system that encourages aspirational Australians to get ahead. Individuals will be able to take on additional work and seek advancement, knowing their extra income will not be taxed more harshly.

By 2024–25 around 94 per cent of taxpayers are projected to face a marginal tax rate of 32.5 per cent or less, compared with 63 per cent if we leave the system unchanged.

The plan is affordable and funded and will be legislated giving Australians certainty about their future tax relief, now.

Together our reforms to company taxes, tax integrity and personal income taxes build a simpler tax system, reward hard working Australians and drive a stronger economy.

Number of Australians receiving tax relief in step one

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The Government’s seven–year Personal Income Tax Plan means more Australians will face lower rates of tax.

 

Proportion of taxpayers in each tax bracket in 2017‒18 under the current system

Proportion of taxpayers in each tax bracket in 2024‒25 under the current system

Proportion of taxpayers in each tax bracket in 2024‒25 under the Government’s Plan

* Average full–time earnings includes both males and females, and excludes earnings from overtime work

Step 1: Immediate relief to low and middle income earners

To help relieve household budget pressures, the Government will provide responsible tax relief to middle and lower income earners of up to $530 in the 2018–19, 2019–20, 2020–21 and 2021–22 income years through a targeted non-refundable tax offset.

Those earning up to $37,000 who face a 19 per cent tax rate will have their tax reduced by up to $200. This will increase incrementally for those earning between $37,000 and $48,000. The maximum offset of $530 will be available to taxpayers earning between $48,000 and $90,000. This benefit then gradually reduces to zero at a taxable income of just over $125,000.

This will assist over 10 million Australians, with around 4.4 million people, including those on average full time earnings, receiving the full $530 benefit for 2018–19.

The benefit of the offset will be received as a lump sum on assessment after individuals lodge their tax returns. This offset is in addition to the low income tax offset. This targeted approach ensures that tax relief goes to middle and lower income earners.

Step 2: Protecting against bracket creep

From 1 July 2018, the Government will provide a tax cut of up to $135 per year to around 3 million people by increasing the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000. This will prevent around 200,000 Australians from paying tax at the 37 per cent marginal rate.

From 1 July 2022, the Government will lock in the tax relief from the new offset by increasing the top threshold of the 19 per cent bracket from $37,000 to $41,000, providing tax relief of up to $540 per year, and increasing the low income tax offset from $445 to $645.

This change to the 19 per cent bracket will prevent around half a million Australians from paying tax at the 32.5 per cent marginal rate in 2022-23.

In addition, the Government will also provide tax relief of up to $1,350 per year by increasing the top threshold of the 32.5 per cent bracket from $90,000 to $120,000 from 1 July 2022. This is projected to prevent around 1.8 million taxpayers facing the 37 per cent tax rate in 2022-23 due to wages growth and bracket creep.

The new targeted tax offset will benefit over 10 million low and middle income earners, 2018-19

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Step 3: Making personal taxes simpler and flatter

In 2024–25, the Government will simplify and flatten the personal tax system by abolishing the 37 per cent tax bracket entirely. Australians earning more than $41,000 will only pay 32.5 cents in the dollar all the way up to the top marginal tax rate threshold that will be adjusted to $200,000.

Rate Thresholds in 2017-18 New thresholds in 2024-25
Nil Up to $18,200 Up to $18,200
19 per cent $18,201 - $37,000 $18,201 - $41,000
32.5 per cent $37,001 - $87,000 $41,001 - $200,000
37 per cent $87,001 - $180,000 -
45 per cent Above $180,000 Above $200,000

As a result of this final step, around 94 per cent of 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.

The plan provides certainty to the majority of taxpayers that they will face the same marginal tax rate into the future, helping to improve incentives to take on additional work and seek a pay rise.

Australia has relatively high rates of tax, cutting in at relatively low levels of income compared with other countries. Australia's top marginal tax rate cuts in at around 2.2 times average full-time earnings, compared with four times in Canada and the UK and eight times in the US. Without change, Australia's ratio is projected to drop to around 1.7 reducing our international competitiveness and ability to attract and retain talent. Under the Government's plan, this ratio will fall more modestly to around 1.9.

The plan strikes the right balance between improving the system for all Australians and ensuring that the top earners pay their fair share.

Current top marginal tax rates comparison, selected OECD countries

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Source: Treasury calculations, 2017 OECD Revenue Statistics and Tax Database.

 

New personal tax rates and thresholds: 2018–19, 2022–23 and 2024–25
Rate (%) Current tax thresholds Income range ($) New tax thresholds From 1 July 2018 Income range ($) New tax thresholds From 1 July 2022 Income range ($) New tax thresholds From 1 July 2024 Income range ($)
Tax free 0 - 18,200 0 - 18,200 0 - 18,200 0 - 18,200
19 18,201 - 37,000 18,201 - 37,000 18,201 - 41,000 18,201 - 41,000
32.5 37,001 - 87,000 37,001 - 90,000 41,001 - 120,000 41,001 - 200,000
37 87,001 - 180,000 90,001 - 180,000 120,001 - 180,000 -
45 >180,000 >180,000 >180,000 >200,000
Low and middle income tax offset Up to 530 - -
LITO Up to 445 Up to 445 Up to 645 Up to 645

 

Cumulative tax relief under the Government's Personal Income Tax Plan to 2024-25

The table below sums the annual benefit at different income levels under the Government's Personal Income Tax Plan of the targeted non-refundable tax offset, increasing the low income tax offset and changes to income tax thresholds. The benefits are summed from 2018–19 through to the final year of the changes in 2024–25.

 

Table: Cumulative tax relief and tax paid from 2018-19 to 2024-25 under the Government's plan*
Taxable Income: $30,000 $50,000 $80,000 $90,000
  Tax paid** Tax relief Tax paid Tax relief Tax paid Tax relief Tax paid Tax relief
2018-19 $2,197 $200 $8,017 $530 $18,617 $530 $22,067 $665
2019-20 $4,394 $400 $16,034 $1,060 $37,234 $1,060 $44,134 $1,330
2020-21 $6,591 $600 $24,051 $1,590 $55,851 $1,590 $66,201 $1,995
2021-22 $8,788 $800 $32,068 $2,120 $74,468 $2,120 $88,268 $2,660
2022-23 $10,985 $1,000 $40,075 $2,660 $93,075 $2,660 $110,325 $3,335
2023-24 $13,182 $1,200 $48,082 $3,200 $111,682 $3,200 $132,382 $4,010
2024-25 $15,379 $1,400 $56,089 $3,740 $130,289 $3,740 $154,439 $4,685

 

Taxable Income: $120,000 $160,000 $200,000
  Tax paid Tax relief Tax paid Tax relief Tax paid Tax relief
2018-19 $34,217 $215 $49,897 $135 $67,097 $135
2019-20 $68,434 $430 $99,794 $270 $134,194 $270
2020-21 $102,651 $645 $149,691 $405 $201,291 $405
2021-22 $136,868 $860 $199,588 $540 $268,388 $540
2022-23 $169,275 $2,885 $247,595 $2,565 $333,595 $2,565
2023-24 $201,682 $4,910 $295,602 $4,590 $398,802 $4,590
2024-25 $234,089 $6,935 $341,809 $8,415 $458,809 $11,815

*The cumulative tax paid is the sum of an individual's annual tax liability relative to the base year of 2017-18 and includes the 2 per cent Medicare levy.

**Tax paid after incorporating the tax relief under the Personal Income Tax Plan.

 

Change in household tax paid – Single person household
  From 2018-19 From 2022-23 From 2024-25
Taxable Income Current Tax Liability Tax Liability Change in Tax Tax Liability Change in Tax Tax Liability Change in Tax
30,000 2,397 2,197 -200 2,197 -200 2,197 -200
35,000 3,447 3,247 -200 3,247 -200 3,247 -200
40,000 4,947 4,657 -290 4,492 -455 4,492 -455
45,000 6,747 6,307 -440 6,207 -540 6,207 -540
50,000 8,547 8,017 -530 8,007 -540 8,007 -540
55,000 10,347 9,817 -530 9,807 -540 9,807 -540
60,000 12,147 11,617 -530 11,607 -540 11,607 -540
65,000 13,947 13,417 -530 13,407 -540 13,407 -540
70,000 15,697 15,167 -530 15,157 -540 15,157 -540
75,000 17,422 16,892 -530 16,882 -540 16,882 -540
80,000 19,147 18,617 -530 18,607 -540 18,607 -540
85,000 20,872 20,342 -530 20,332 -540 20,332 -540
90,000 22,732 22,067 -665 22,057 -675 22,057 -675
100,000 26,632 26,117 -515 25,507 -1,125 25,507 -1,125
110,000 30,532 30,167 -365 28,957 -1,575 28,957 -1,575
120,000 34,432 34,217 -215 32,407 -2,025 32,407 -2,025
130,000 38,332 38,197 -135 36,307 -2,025 35,857 -2,475
140,000 42,232 42,097 -135 40,207 -2,025 39,307 -2,925
160,000 50,032 49,897 -135 48,007 -2,025 46,207 -3,825
180,000 57,832 57,697 -135 55,807 -2,025 53,107 -4,725
200,000 67,232 67,097 -135 65,207 -2,025 60,007 -7,225

*The table provides stylised cameos based on the tax payable for these households, excluding any transfer payments. The tax liability and reduction in tax is calculated only taking into account the basic tax scales, low income tax offset, low and middle income tax offset and the Medicare levy (at 2 per cent with the change to the Medicare levy low income thresholds). Actual outcomes for many individuals and households would differ.

 

Change in household tax paid – Couple with single income earner
  From 2018-19 From 2022-23 From 2024-25
Taxable Income - Primary Earner Taxable Income - Spouse Household Taxable Income Current Tax Liability Tax Liability Change in Tax Tax Liability Change in Tax Tax Liability Change in Tax
30,000 0 30,000 1,797 1,597 -200 1,597 -200 1,597 -200
35,000 0 35,000 2,747 2,547 -200 2,547 -200 2,547 -200
40,000 0 40,000 4,438 4,148 -290 3,983 -455 3,983 -455
45,000 0 45,000 6,638 6,198 -440 6,098 -540 6,098 -540
50,000 0 50,000 8,547 8,017 -530 -540 -540
55,000 0 55,000 10,347 9,817 -530 9,807 -540 9,807 -540
60,000 0 60,000 12,147 11,617 -530 11,607 -540 11,607 -540
65,000 0 65,000 13,947 13,417 -530 13,407 -540 13,407 -540
70,000 0 70,000 15,697 15,167 -530 15,157 -540 15,157 -540
75,000 0 75,000 17,422 16,892 -530 16,882 -540 16,882 -540
80,000 0 80,000 19,147 18,617 -530 18,607 -540 18,607 -540
85,000 0 85,000 20,872 20,342 -530 20,332 -540 20,332 -540
90,000 0 90,000 22,732 22,067 -665 22,057 -675 22,057 -675
100,000 0 100,000 26,632 26,117 -515 25,507 -1,125 25,507 -1,125
110,000 0 110,000 30,532 30,167 -365 28,957 -1,575 28,957 -1,575
120,000 0 120,000 34,432 34,217 -215 32,407 -2,025 32,407 -2,025
130,000 0 130,000 38,332 38,197 -135 36,307 -2,025 35,857 -2,475
140,000 0 140,000 42,232 42,097 -135 40,207 -2,025 39,307 -2,925
160,000 0 160,000 50,032 49,897 -135 48,007 -2,025 46,207 -3,825
180,000 0 180,000 57,832 57,697 -135 55,807 -2,025 53,107 -4,725
200,000 0 200,000 67,232 67,097 -135 65,207 -2,025 60,007 -7,225

*The table provides stylised cameos based on the tax payable for these households, excluding any transfer payments. The tax liability and reduction in tax is calculated only taking into account the basic tax scales, low income tax offset, low and middle income tax offset and the Medicare levy (at 2 per cent with the change to the Medicare levy low income thresholds). Actual outcomes for many individuals and households would differ.

Change in household tax paid – Dual income couple - equal income split
  From 2018-19 From 2022-23 From 2024-25
Taxable Income - Spouse 1 Taxable Income - Spouse 2 Household Taxable Income Current Tax Liability Tax Liability Change in Tax Tax Liability Change in Tax Tax Liability Change in Tax
30,000 30,000 60,000 4,794 4,394 -400 4,394 -400 4,394 -400
35,000 35,000 70,000 6,894 6,494 -400 6,494 -400 6,494 -400
40,000 40,000 80,000 9,894 9,314 -580 9,984 -910 9,984 -910
45,000 45,000 90,000 13,494 12,614 -880 12,414 -1,080 12,414 -1,080
50,000 50,000 100,000 17,094 16,034 -1,060 16,014 -1,080 16,014 -1,080
55,000 55,000 110,000 20,694 19,634 -1,060 19,614 -1,080 19,614 -1,080
60,000 60,000 120,000 24,294 23,234 -1,060 23,214 -1,080 23,214 -1,080
65,000 65,000 130,000 27,894 26,834 -1,060 26,814 -1,080 26,814 -1,080
70,000 70,000 140,000 31,394 30,334 -1,060 30,314 -1,080 30,314 -1,080
75,000 75,000 150,000 34,844 33,784 -1,060 33,764 -1,080 33,764 -1,080
80,000 80,000 160,000 38,294 37,234 -1,060 37,214 -1,080 37,214 -1,080
85,000 85,000 170,000 41,744 40,684 -1,060 40,664 -1,080 40,664 -1,080
90,000 90,000 180,000 45,464 44,134 -1,330 44,114 -1,350 44,114 -1,350
100,000 100,000 200,000 53,264 52,234 -1,030 51,014 -2,250 51,014 -2,250
110,000 110,000 220,000 61,064 60,334 -730 57,914 -3,150 57,914 -3,150
120,000 120,000 240,000 68,864 68,434 -430 64,814 -4,050 64,814 -4,050
130,000 130,000 260,000 76,664 76,394 -270 72,614 -4,050 71,714 -4,950
140,000 140,000 280,000 84,464 84,194 -270 80,414 -4,050 78,614 -5,850
160,000 160,000 320,000 100,064 99,794 -270 96,014 -4,050 92,414 -7,650
180,000 180,000 360,000 115,664 115,394 -270 111,614 -4,050 106,214 -9,450
200,000 200,000 400,000 134,464 134,194 -270 130,414 -4,050 120,014 -14,450

*The table provides stylised cameos based on the tax payable for these households, excluding any transfer payments. The tax liability and reduction in tax is calculated only taking into account the basic tax scales, low income tax offset, low and middle income tax offset and the Medicare levy (at 2 per cent with the change to the Medicare levy low income thresholds). Actual outcomes for many individuals and households would differ.

Change in household tax paid – Dual income couple - two-thirds and one-third split
  From 2018-19 From 2022-23 From 2024-25
Taxable Income - Primary Earner Taxable Income - Spouse Household Taxable Income Current Tax Liability Tax Liability Change in Tax Tax Liability Change in Tax Tax Liability Change in Tax
40,200 19,800 60,000 5,019 4,723 -296 4,547 -472 4,547 -472
46,900 23,100 70,000 8,029 7,332 -697 7,289 -740 7,289 -740
53,600 26,400 80,000 11,398 10,668 -730 10,658 -740 10,658 -740
60,300 29,700 90,000 14,589 13,859 -730 13,849 -740 13,849 -740
67,000 33,000 100,000 17,689 16,959 -730 16,949 -740 16,949 -740
73,700 36,300 110,000 20,694 19,964 -730 19,954 -740 19,954 -740
80,400 39,600 120,000 24,088 23,280 -808 23,127 -961 23,127 -961
87,100 42,900 130,000 27,592 26,681 -912 26,508 -1,085 26,508 -1,085
93,800 46,200 140,000 31,393 30,309 -1,084 30,007 -1,386 30,007 -1,386
100,500 49,500 150,000 35,194 34,157 -1,038 33,507 -1,688 33,507 -1,688
107,200 52,800 160,000 38,995 38,058 -937 37,006 -1,989 37,006 -1,989
113,900 56,100 170,000 42,796 41,960 -837 40,506 -2,291 40,506 -2,291
120,600 59,400 180,000 46,597 45,861 -736 44,032 -2,565 44,005 -2,592
134,000 66,000 200,000 54,199 53,534 -665 51,634 -2,565 51,004 -3,195
147,400 72,600 220,000 61,712 61,047 -665 59,147 -2,565 57,914 -3,798
160,800 79,200 240,000 69,215 68,550 -665 66,650 -2,565 64,814 -4,401
174,200 85,800 260,000 76,718 76,053 -665 74,153 -2,565 71,714 -5,004
187,600 92,400 280,000 85,072 84,308 -764 82,264 -2,808 78,614 -6,458
200,000 100,000 300,000 93,864 93,214 -650 90,714 -3,150 85,514 -8,350

*The table provides stylised cameos based on the tax payable for these households, excluding any transfer payments. The tax liability and reduction in tax is calculated only taking into account the basic tax scales, low income tax offset, low and middle income tax offset and the Medicare levy (at 2 per cent with the change to the Medicare levy low income thresholds). Actual outcomes for many individuals and households would differ.

Questions and answers

Low and middle income tax offset

When will I receive the benefit of the low and middle income tax offset?

  • Individuals will receive the benefit as a lump sum on assessment after lodging their tax return. The offset will apply to individuals' tax returns lodged for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

Can both my spouse and I receive the offset?

  • Yes, the entitlement to the offset is on an individual basis.

Will Australians without a tax liability benefit from the offset?

  • No, the offset is non-refundable, meaning it can only be used to reduce a taxpayer's income tax liability to zero and cannot be used to reduce the Medicare levy.
  • The Government separately provides targeted support to those on low incomes through the transfer and payments system.

What happens to the new offset after 2021-22?

  • The offset will be removed but its benefit will be continued by extending the 19 per cent tax bracket from $37,000 to $41,000, and increasing the low income tax offset from $445 to $645.

Can non-residents receive the offset?

  • No, an individual must be an Australian resident for tax purposes.

Will the increase to the low income tax offset (LITO) from 2022-23 affect the seniors and pensioner's tax offset (SAPTO)?

  • The new LITO will not affect the entitlement to SAPTO. The maximum SAPTO amount ($2,230 for singles) and shade-out income threshold ($32,279 for singles) will remain the same.

Changes to income tax thresholds

When will the benefit of increasing the top threshold of the 32.5 per cent tax bracket from $87,000 threshold to $90,000 be received?

  • The benefit will be received from 1 July 2018 as part of pay as you go withholding.

Budget repair

Why is the Government prioritising these tax cuts rather than putting the money towards budget repair?

  • This plan is affordable and will make personal income tax lower, fairer and simpler. By growing our economy the Government can fund this plan and deliver a stronger Budget to ensure Australia continues to live within its means.
  • The plan is fully funded in the forward estimates and medium term fiscal projections, with the underlying cash balance returning to balance in 2019-20 and sustained surpluses thereafter over the medium-term.