On Wednesday 9 May, Treasurer Scott Morrison introduced the Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018 into the House of Representatives. The Bill, if passed, will provide the legislative framework for the Turnbull Government’s flagship Budget promise to cut income taxes.
Introducing the Bill into the House of Representatives, Mr Morrison said:
“Over the seven years of this plan, the government will provide tax relief to encourage and reward hardworking Australians and to reduce household budget pressures.
The plan will mean that individuals will be able to take on additional work, seek advancement and put the extra hours in, knowing that their extra income and their extra hard work will remain with them and that a higher proportion will not go to the government in higher taxes. Our plan will deliver a personal income tax system that is lower, fairer and simpler, consistent with Liberal-National values.
The plan will be delivered in three steps.
(1) It will provide tax relief to low- and middle-income earners first.
(2) It will protect what Australians earn from bracket creep.
(3) It will ensure Australians pay less tax, by making personal taxes simpler and flatter.”
The Bill’s amendments are contained in two schedules. Schedule 1 deals with low and middle income tax offset amount. Under the new law, taxpayers who are resident in Australia with taxable income under $125,333 will be entitled to receive a tax offset for the 2018-19, 2019-20, 2020-21 and 2021-22 income years. This will operate in addition to the existing LITO (“low income tax offset”). From the 2022-23 income years onwards, these two offsets will be replaced by a new low income tax offset for individuals with a taxable income of less than $66,667.
Schedule 2 of the Bill makes changes to the Income Tax Rates Act 1986 to progressively increase the income tax rate thresholds in 2018-19, 2022-23 and 2024-25. In his second reading speech, Mr Morrison explained:
“It will help ensure that incomes earned by Australians are protected from bracket creep. From 1 July 2018, the government will increase the top threshold of the 32½ per cent tax bracket from $87,000 to $90,000, providing a tax cut of up to $135 per year to around three million taxpayers. This builds on the 2016-17 budget increase to the top threshold of the 32½ per cent bracket from $80,000 to $87,000, and shows the Turnbull government's long-term commitment to reforming the personal income tax system.
From 1 July 2022, the government will provide tax relief of up to $1,350 per year by further increasing the top threshold of the 32½ per cent bracket from $90,000 to $120,000. This is projected to benefit around 3.9 million taxpayers and prevent around 1.8 million taxpayers from facing the second-top marginal tax rate of 37 per cent in 2022-23...
…From 1 July 2024, the top threshold of the 32.5 per cent tax bracket will be further increased from $120,000 to $200,000, abolishing the 37 per cent tax bracket altogether and reducing the number of tax brackets from five to four. This is projected to prevent around 1.8 million taxpayers from facing a tax rate higher than 32.5 per cent.”
The Bill will now be considered by the House of Representatives.
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Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018 (Cth), Explanatory Memorandum and Second Reading Speech - available from TimeBase's LawOne service
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