Budget 2018: How the income tax cuts will affect you

Posted: 8 May 2018 8:37 pm

The government announced a seven-year Personal Income Tax Plan in tonight's budget.

What's changing?

After weeks of speculation, treasurer Scott Morrison has confirmed a range of income tax cuts for Australian workers in tonight's federal budget under a seven-year Personal Income Tax Plan. The plan will provide tax offsets to working Australians from as early as next year, and will remove the 37% tax bracket completely by the year 2024-25.

The plan consists of three phases: immediate relief to low and middle income earners, protecting against bracket creep and making personal taxes simpler and flatter.

Who will this affect?

Immediate relief to low and middle income earners

The first of the changes involves personal tax offsets for low and middle income earners. If you're earning less than $37,000 annually you're set to receive a tax offset of up to $200. Those earning between $37,001 - $47,999 will receive a tax offset between $200 and $500. The biggest offset will be available for people earning between $48,000 - $90,000 who will be eligible for an offset of up to $530. This offset will gradually reduce the more you earn, with those earning $125,330 or more not eligible for an offset.

It's important to note that this tax offset is in addition to the existing Low Income Tax Offset (LITO), which acts as a form of tax deduction for low and middle income earners. Currently, the maximum offset that can be applied is $445 a year for those earning $37,000 or less. This offset gradually decreases by 1.5 cents for every dollar over $37,000 until you earn above $66,667 when you are no longer able to apply the LITO.

The following table shows the newly proposed tax offset applied for each salary range over the next seven years.

Taxable incomeTax offset 2018-2022Tax offset 2022-2024Tax offset 2024-2025

Protecting against bracket creep and making personal taxes simpler and flatter

The government will also extend the tax brackets gradually over the next seven years until the 37% bracket is phased out completely. This will ensure fewer Australians are penalised for receiving a pay rise by having to move into the higher tax bracket.

For example, if you're currently earning $85,000 and earn a pay rise that brings your salary up to $95,000, you'd be pushed into the higher tax bracket and have to pay $19,822 plus 37 cents for each dollar above $87,000. However, under the proposed changes to be implemented by 2024, you'd remain within the lower tax bracket much longer.

The current tax brackets and projected tax brackets by the year 2024 are outlined in the tables below.

Current tax rates for Australian residents for the 2017-18 financial year
Taxable incomeTax on this income
0 – $18,200Nil
$18,201 – $37,00019c for each $1 over $18,200
$37,001 – $87,000$3,572 plus 32.5c for each $1 over $37,000
$87,001 – $180,000$19,822 plus 37c for each $1 over $87,000
$180,001 and over$54,232 plus 45c for each $1 over $180,000
Planned tax brackets for Australian residents by the 2024-25 financial year
Taxable incomeTax on this income
0 – $18,200Nil
$18,201 – $41,00019c for each $1 over $18,200
$41,001 – $200,000$3,572 plus 32.5c for each $1 over $37,000
Phased outPhased out
$200,001 and over$54,232 plus 45c for each $1 over $180,000

When will the changes happen?

The changes will be rolled out over a period of seven years, starting with the personal income tax offsets next year. Australians will be able to apply for the income tax offset when lodging their tax returns in the 2018-19, 2019-20, 2020-21 and 2021-22 financial years. The tax offset will be received as a lump sum offset, reducing the amount of tax owed or increasing your tax refund.

The changes to the tax brackets will be gradually rolled out over the next seven years, until the 37% tax bracket is completely gone by 2024.

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4 Responses

    Default Gravatar
    GloriaJuly 4, 2018

    Will I receive a low income offset for 2017/2018 tax return if I earned $49800

      Avatarfinder Customer Care
      AlisonJuly 4, 2018Staff

      Hi Gloria,

      According to the ATO, you’re eligible to receive the Low Income Tax Offset if your total taxable income is less than $66,667. Please note that the maximum offset of $445 applies if your total taxable incomes is less than $37,000, and it gradually reduces by 1.5 cents for each dollar you earn above this amount.

      Hope this helps!


    Default Gravatar
    JolyonMay 9, 2018

    How does the new low and middle income tax offset apply ? What are the details year by year?

      Avatarfinder Customer Care
      AlisonMay 9, 2018Staff

      Hi Jolyon,

      When you submit your tax return for the 2018-19 financial year, the offset will be applied to your return automatically (you won’t need to do anything). If you owe tax, the offset will reduce the amount of tax you’re required to pay. If you are getting a tax refund, the offset will increase the refund amount. You can refer to the table within the article to see how much the offset will be for each salary range, for each year over the next seven years.

      It’s important to note that these are proposed changes by the government that still need to pass through the senate before they can take affect.

      Hope this helps!


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