Starting immediately, low and middle income earners with an income up to $126,000 will receive up to $1,080 in LMITO

The Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 was introduced on 2 July 2019 and then passed all stages without amendment and received Royal Assent on 5 July 2019 as Act No 52 of 2019. The Bill fully implements the personal tax cuts measures announced in this year's 2019-20 Federal Budget. While Labor has consistently argued against the Stage 3 tax cuts that would apply from 1 July 2024 (see table below), it agreed to pass the Bill but said it will review Stage 3 closer to the next election.

The Bill amends the income tax law to:

  • increase the base and maximum amounts of the low and middle income tax offset (LMITO) to $255 (up from $200) and $1,080 (up from $530), respectively, for the 2018-19, 2019-20, 2020-21 and 2021-22 income years:

-         The LMITO is increased from a maximum amount of $530 to $1,080 per annum and the base amount is increased from $200 to $255 per annum.

-         Taxpayers with a taxable income that does not exceed $37,000 will receive a LMITO of up to $255.

-         Taxpayers with a taxable income that exceeds $37,000 but is not more than $48,000 will receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080.

-         Taxpayers with a taxable income that exceeds $48,000 but is not more than $90,000 will be eligible for the maximum LMITO of $1,080.

-         Taxpayers with a taxable income that exceeds $90,000 but is not more than $126,000 will be eligible for a LMITO of $1,080, less an amount equal to 3% of the excess.

  • increase the amount of the low income tax offset (LITO) from 2022-23;
  • reduce the tax payable by individuals in 2022-23 and later income years by increasing income tax rate thresholds and in 2024-25 and later income years by lowering income tax rates:

-         For the 2022-23 income year and later income years, the Bill increases the amount of taxable income subject to the 19% rate to include taxable income between $18,201 and $45,000 (rather than the current $41,000).

-         For the 2024-25 income year and later income years, the Bill reduces the second personal rate of income tax to 30% (from 32.5%). This would leave just three tax rates – 19%, 30% and 45%.

-         Foreign resident and holiday maker (backpacker) rates also change accordingly.

With the changes, Australian resident individuals (and certain trustees) with taxable income that does not exceed $126,000 would be entitled to the LMITO for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

For 2022-23 and later income years, individuals with taxable income that does not exceed $66,667 (as well as certain trustees taxed on behalf of individuals) would be entitled to the new LITO.

Schedule 1 to the Bill enhances the current LMITO by increasing the base offset from $200 to $255 and the maximum benefit from $530 to $1,080 for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

Schedule 1 also increases the amount of the LITO from $645 to $700 from 2022-23. Schedule 2 to the Bill increases the top threshold of the 19% tax bracket from $41,000 to $45,000 from 1 July 2022, and reduces the 32.5% rate to 30% from 1 July 2024.

Date of effect

The changes to the LMITO apply in the 2018-19, 2019-20, 2020-21 and 2021-22 income years. The changes to income tax thresholds, as well as to the LITO, apply to the 2022-23 income year and later income years. The changes to income tax rates apply to the 2024-25 income year and later income years.

Rates and threshold tables

The following table reflects the Government's changes:

Tax rates and income thresholds

Rate

2017-18

2018-19 to 2021-22

2022-23 to 2023-24

From 1.7.2024

Nil

$0 - $18,200

$0 - $18,200

$0 - $18,200

$0 - $18,200

19%

$18,201 - $37,000

$18,201 - $37,000

$18,201 - $45,000

$18,201 - $45,000

30%

$45,001 - $200,000

32.5%

$37,001 - $87,000

$37,001 - $90,000

$45,001 - $120,000

37%

$87,001 - $180,000

$90,001 - $180,000

$120,001 - $180,000

45%

$180,001 +

$180,001 +

$180,001 +

$200,001 +

LMITO

-

Up to $1,080

-

LITO

Up to $445

Up to $445

Up to $700

Up to $700

The Treasurer said that, starting immediately, low and middle income earners with an income up to $126,000 will receive up to $1,080 in LMITO, or $2,160 for dual income couples, with the increased tax relief to apply from the 2018-19 income year.

As a result of the amendments, the Treasurer said around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less in 2024-25.

Foreign residents

For 2018-19 to 2021-22, the tax rates for foreign residents are:

  • $0 - $90,000 - 32.5%;
  • $90,001 - $180,000 - 37%;
  • $180,001+ - 45%.

For 2022-23 and 2023-24, the tax rates for foreign residents are:

  • $0 - $120,000 - 32.5%;
  • $120,001 - $180,000 - 37%;
  • $180,001+ - 45%.

For 2024-25 and later income years, the tax rates for foreign residents are:

  • $0 - 200,000 – 30%;
  • $200,001+ - 45%.

Working holidaymakers

For 2022-23 and 2023-24, the rates of tax for working holiday makers are:

  • $0 - $45,000 – 15%;
  • $45,001 - $120,000 - 32.5%;
  • $120,001 - $180,000 – 37%;
  • $180,001+ - 45%.

For 2024-25 and later income years, the rates of tax for working holiday makers are:

  • $0 - $45,000 – 15%;
  • $45,001 - $200,000 – 30%;
  • $200,001+ - 45%.

Georgia Anderson Anderson Associates