2018 Federal Budget - Individual

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May 8, 2018 | Posted in Superannuation, Tax
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The 2018-2019 budget has put forward a 3 step process to provide tax cuts to low and middle income earners.

Step 1 – Income tax offset for low and middle income earners

Individuals will receive a Low and Middle Income Tax Offset (LMITO) on the lodgement of an income tax return for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

Taxable Income

Offset

0 - $37,000

$200

$37,000 - $48,000

$200 + [(Taxable Income - $37,000) x 3%]

$48,000 - $90,000

$530

$90,000 - $125,333

$530 – [(Taxable Income - $90,000) x 1.5%]

Step 2 – Increase the margin tax bracket income levels for middle income earners.

From 1 July 2018 the top threshold for the 32.5% tax bracket will be increased to $90,000 from $87,000.  

In the 2022-2023 year the low income tax offset (LITO) will be increase from $445 to $645.

Current Low Income Tax Offset

Proposed Low Income Tax Offset

Taxable Income

2017/2018

Taxable Income

2022/2023

0 - $37,000

$445

0 - $37,000

$645

$37,000 - $66,667

$445 – [(Taxable Income - $37,000) x 1.5%]

$37,000 - $41,000

$645 – [(Taxable Income - $37,000) x 6.5%]

$66,667 +

Nil

$41,000-$66,667

$385 – [(Taxable Income - $41,000) x 1.5%]

 

 

$66,667 +

Nil

Also in the 2022-2023 year the 19% individual margin tax bracket will be increased to $41,000 from $37,000 and the 32.5% tax bracket will be increase to $120,000 from $90,000.

Step 3 – Removal of the 37% margin tax bracket

From 1 July 2024 the 37% margin tax bracket will be removed and the top rate for the 32.5% bracket will be increased from $120,000 to $200,000.

The below table illustrates the proposed changes to the marginal income tax rates & thresholds for individuals compared to the current legislation

Rate

2017/2018

2018/2019

2022/2023

2024/2025

Nil

0 - $18,200

0 - $18,200

0 - $18,200

0 - $18,200

19%

$18,201 - $37,000

$18,201 - $37,000

$18,201 - $40,000

$18,201 - $41,000

32.5%

$37,001 - $87,000

$37,001 - $90,000

$40,001 - $120,000

$41,001 - $200,000

37%

$87,000 - $180,000

$90,001 - $180,000

$120,001 - $180,000

Nil

45%

Above $180,000

Above $180,000

Above $180,000

Above $200,000

LMITO

Nil

Up to $530

Nil

Nil

LITO

Up to $445

Up to $445

Up to $645

Up to $645

 

The budget retains the Medicare levy at 2% instead for increasing it to the 2.5% that was announces in last year’s budget. In addition the Medicare levy low income threshold are proposed to increasing from 1 July 2018 as follows:

  • Singles from $21,655 to $21,980
  • Families from $36,541 to $37,089
  • Single Seniors and Pensioners from $34,244 to $34,758
  • Family Seniors and Pensioners from $47,670 to $48,835
  • For each family income threshold each dependent child or student will increase the threshold another $3,406 from the original $3,356

Increased budget for ATO compliance targeting

To increase the ATO compliance activities targeting individual tax payers and their agents the budget has allocated $130.8 million to the ATO from 1 July 2018.

The funding will be used to continue the operation of 4 income matching programs that was due to terminate on the 1 July 2018. The programs allow the ATO to identify incorrect reporting of income of high-wealth individuals such as foreign source income.

The additional funding will also be used for new compliance activities such as:

  • Additional audits and prosecutions
  • Improving education and guidance materials
  • Pre-filling of income tax returns
  • Improving real time messaging to tax agents & individual taxpayers to deter over-claiming of entitlements, in particular high risk taxpayers and their agents.

Integrity measure for high profile individuals

From the 1 July 2019, high profile individuals will no longer be able to licence their image or fame to another entity to benefit from lower tax rates.

Under the current legislation high profile individuals such as sportspeople and actors are able to licence their image or fame to another entity such as a company or trust. This results in the income derived from their image or fame going to the entity holding the licence. As a consequence the income can be more advantageously taxed than if it was in that individual’s assessable income.

The proposed measures will mean all income derived (including not cash benefits) from the individuals image or fame will be included in that individual’s assessable income.

Check out our 2018 budget summaries for the below categories. (Click on the images below to jump to these sections).




Sources:

Wolters Kluwer Publishers

Thomson Reuters Publishers

Commonwealth of Australia 2018 - Budget Measures. Budget Paper No. 22018-19

DarylCorpe
,

 

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