The Federal Government handed down its 2018 budget last Wednesday with a proposal for $140 billion in tax cuts to be delivered over the next decade. For low and middle income households, tax relief of up to $1,060 will be available from as early as 1 July 2018 with the major change to tax brackets occurring from 1 July 2022. Below I have summarised what the changes are, and when you’re set to receive the benefits:
From 1 July 2018
Individuals will be getting a tax cut in three ways over seven years.
- Low and middle income earners are to benefit from tax savings of up to $530 per person (or $1,060 per couple).
- The top threshold of the 32.5% tax bracket will increase from $87,000 to $90,000.
- The Medicare Levy will remain at 2% as opposed to being increased to 2.5%.
Changes to come later – maybe
- The Government has officially denied tax deductions for expenses associated with holding vacant land. It is expected this will take effect on 1 July 2019. This measure is to stop deductions from being improperly claimed for vacant land where land is not genuinely for sale or for the purpose of earning assessable income.
- From 1 July 2022 the Government proposes to extend the 19% personal income tax bracket from $37,000 to $41,000 and increase the top threshold to the 32.5% personal income tax bracket from $90,000 to $120.000. In this year, the Low Income Tax Offset is also proposed to increase to $645 from $445.
- From 2024 the Government proposes to simplify and flatter than tax system. By 2024, everyone earning between $41,000 and $200,000 will pay 32.5 % tax. That means a big tax cut for those earning more than $90,000 who would have paid 37 per cent, but it’s a long way down the track.
- In 2024-25, the 37 per cent tax bracket will be abolished – if both parties agree to this in 6 years’ time.
With this budget the government has attempted to ease the individual taxation burden, but much of their measures will not happen for some time, if at all. It will require the government taking a bipartisan approach to tax reform, and no major changes in the current government policy. And as well all know, and any changes in leadership after the next federal election could see all of the current and future tax savings scrapped.
By Simone Hill