The item that may receive the most analysis from the whole of this year’s federal budget will be the increase of the 32.5% tax bracket, and an expansion of the Low Income Tax Offset.
Bracket adjustment in personal income taxes
The upper threshold for the 32.5% marginal tax rate bracket will increase from $87,000 to $90,000. It will apply from 2018-19.
Implemented to address the issue of bracket creep, it is anticipated that the adjustment to the marginal tax bracket will stop a further 200,000 Australians from entering the 37% marginal tax rate bracket.
Moreover, from 1 July 2022, there will be further adjustments made to the brackets. The upper income threshold for the 32.5% bracket will be increased from $90,000 to $120,000. In addition, the upper income threshold for the 19% rate will increase from $37,000 to $41,000. By 2024, the 37% rate will be scrapped. The 32.5% rate will apply up to $200,000.
Low and middle income tax offset
Introduction of a non-refundable tax offset of up to $530 per annum targeted at low to middle income earners. It will affect individuals with taxable income of up to $125,333, and will apply from 2018-19 to 2021-22.
For taxpayers with taxable income of $37,000 or less, the Low and Middle Income Tax Offset will provide a benefit of up to $200.
Between a taxable income of $37,000 and $48,000, the value of the offset will increase by 3 cents in the dollar up to the maximum offset of $530. It is noted that taxpayers with taxable incomes between $48,000 and $90,000 will be eligible to receive the $530 maximum offset.
The offset will phase out at a rate of 1.5 cents per dollar between taxable income between $90,001 and $125,333.
An increase in the Medicare levy low-income thresholds for singles, families, and seniors and pensioners. This will affect low-income earners and will apply 2017-18.
The various exemption thresholds for low-income earners will increase to take into account movements in the CPI. Further, the Government has confirmed that it will not be increasing the Medicare Levy rate from 2.0% to 2.5%.
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