Chapter 1
Introduction
1.1
On 9 May 2018, the Treasury Laws Amendment (Personal Income Tax Plan)
Bill 2018 was introduced into the House of Representatives.[1]
On 10 May 2018, the Senate referred the provisions of the bill to the Senate
Economics Legislation Committee for inquiry and report by 18 June 2018.[2]
1.2
The bill seeks to implement to Personal Income Tax Plan, announced in
the 2018–19 Budget, to make income taxes lower, simpler and fairer. In his
second reading speech, the Treasurer emphasised that:
The plan will mean 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...
The plan will be delivered in three steps.
- It will provide tax relief
to low- and middle-income earners first.
- It will protect what
Australians earn from bracket creep.
- It will ensure Australians
pay less tax, by making personal taxes simpler and flatter.[3]
Conduct of the inquiry
1.3
The committee advertised the inquiry on its website. It also wrote to
relevant stakeholders and interested parties inviting written submissions by 25
May 2018. The committee received 22 submissions, which are listed at Appendix
1.
1.4
The committee held a public hearing in Canberra on 6 June 2018 for this
inquiry. A list of witnesses who appeared at the hearing can be found at
Appendix 2.
1.5
The committee would like to thank all the individuals and organisations
that made written submissions and participated in the public hearing.
Overview of the bill
1.6
The bill has two schedules both of which amend various taxation acts.
1.7
Schedule 1 to the bill amend tax law to:
-
introduce the low and middle income tax offset to reduce the tax
payable by low and middle income earners in the 2018–19, 2019–20, 2020–21 and
2021–22 income years; and
-
for 2022–23 and later income years, the schedule merges the low
and middle income tax offset and the low income tax offset into a new low
income tax offset.
1.8
Schedule 2 to the bill amends tax law to progressively increase,
over seven financial years, the income tax rate thresholds. Increases are set
to occur in the following fiscal years, 2018–19, 2022–23 and 2024–25.
Tax offsets for low and middle
income earners
1.9
Schedule 1 amends the Income Tax Assessment Act 1997 (ITAA 1997) and
Income Tax Assessment Act 1936 (ITAA 1936) to introduce the low and middle
income tax offset and later replace both that offset and the existing low
income tax offset with a new low income tax offset.[4]
1.10
The low and middle income tax offset provides the benefit of the
Personal Income Tax Plan to low and middle income earners prior to 2022–23.[5]
1.11
The low and middle income tax offset is available to individuals who are
Australia residents during 2018–19, 2019–20, 2020–21 and 2021–22 income years
and have a taxable income for that year not exceeding $125 333. The low
and middle income tax offset is also available to trustees during these years if
they are taxed on a share of the net income of a trust on behalf of an
Australian resident beneficiary that is under a legal disability, provided the
amount does not exceed $125 333. Similarly, if a trustee is taxed in
relation to the shares of multiple beneficiaries of the trust, the trustee is
separately entitled to the offset in respect of each share of a beneficiary for
which the trustee is taxed.[6]
1.12
The low and middle income tax offsets operates in addition to the low
income tax offset and taxpayers may be entitled to receive both tax offsets.[7]
1.13
The amount of the offset available depends on the relevant income of the
individual or trustee for the income year. Table 1 summarises the amount of the
low and middle income tax offset at different income levels.
Table
1: Amount of the low and middle income tax offset[8]
| Amount of relevant income |
Amount of the low and middle income tax offset |
| Not more than $37,000 |
$200 |
| Exceeding $37,000 but not exceeding
$48,000 |
$200 plus 3 per cent of the
amount of relevant income that exceeds $37,000 |
| Exceeding $48,000 but not
exceeding $90,000 |
$530 |
| Exceeding $90,000 but not
exceeding $125,333 |
$530 less 1.5 per cent of the
amount of relevant income that exceeds $90,000 |
1.14
The amount of the offset is capped and is not available to reduce tax
payable on unearned income of minors.[9]
1.15
Where a taxpayer is entitled to both the low and middle income tax
offset and the beneficiary tax offset, the beneficiary tax offset applies to
reduce tax payable before the low and middle income tax offset.[10]
1.16
The new low income tax offset replaces both the low and middle income
tax offset and the low income tax offset in the 2022–23 income year and later
years. The new low income tax offset is available to individuals who are an
Australian resident during 2022–23 or a later income year if their taxable
income for that income year does not exceed $66 667. Similar provisions
for trustee apply as for the low and middle income tax offset.[11]
1.17
The amount of the new low income tax offset available depends on the
relevant income of the individual or trustee for the income year. Table 2
summarises the amount of the new low income tax offset at different income
levels.
Table
2: Amount of the new low income tax offset[12]
| Amount of relevant
income |
Amount of new low
income tax offset |
| Not exceeding $37,000 |
$645 |
| Exceeding $37,000 but not
exceeding $41,000 |
$645 less 6.5 per cent of the
amount of relevant income that exceeds $37,000 |
| Exceeding $41,000 but not
exceeding $66,667 |
$385 less 1.5 per cent of the
amount of relevant income that exceeds $41,000 |
1.18
Consistent with the low and middle income tax offset, the amount of the
new low income tax offset is capped and is not payable on the unearned income
of minors.[13]
1.19
Also consistent with the low and middle income tax offset, in
determining the amount of this cap, the beneficiary tax offset is treated as
having been applied in the way most favourable to the taxpayer.[14]
1.20
This schedule also makes amendments to the low income tax offset so it
is not available after the introduction of the new low income tax offset in the
2022–23 income year.[15]
Income tax thresholds
1.21
Schedule 2 amends the Income Tax Rates Act 1986 (ITRA 1986) to
make the following changes to the rates of tax that apply to the taxable income
of individuals and other entities not subject to special rules:
-
from the 2018–19 income year, the rate of income tax that applies
to the amount of an individual's ordinary taxable income between $37 000
and $90 000 (rather than $87 000) is 32.5 per cent;
-
from the 2022–23 income year:
-
the rate of tax that applies to the amount of an individual's
ordinary taxable income between $18 201 and $41 000 (rather than
$37 000) is 19 per cent; and
-
the rate of tax that applies to the amount of an individual's
ordinary taxable income between $41 001 and $120 000 (rather than
$87 000 or $90 000) is 32.5 per cent;
-
from the 2024–25 income year:
-
the rate of tax that applies to the amount of an individual's
ordinary taxable income between $40 001 and $200 000 (rather than
$87 000, $90 000 or $120 000) is 32.5 per cent;
-
the rate of tax that applies to the amount of an individual's
ordinary taxable income exceeding $200 000 (rather than $180 000) is
45 per cent; and
-
the 37 per cent rate of income tax is abolished.[16]
1.22
Equivalent changes will apply to other entities that are taxed like
individuals as well as to the thresholds that apply to foreign residents and
working holiday-makers.[17]
1.23
Tables 3, 4, 5 and 6 summarise the proposed changes to income tax rates
and thresholds over the course of the plan.[18]
Table 3: Income tax rates and thresholds in
2017–18
| Australian residents |
Foreign residents |
Working holiday-makers |
| Taxable income |
Tax payable |
Taxable income |
Tax payable |
Taxable income |
Tax payable |
| 0 to $18,200 |
Nil |
0 to $87,000 |
32.5 cents for each $1 |
0 to $37,000 |
15 cents for each $1 |
| $18,201 to $37,000 |
19 cents for each $1 over $18,200 |
$87,000 to $180,000 |
$28,275 plus 37 cents for each $1 over $87,000 |
$37,001 to $87,000 |
$5,550 plus 32.5 cents for each $1 over $37,000 |
| $37,001 to $87,000 |
$3,572 plus 32.5 cents for each $1 over $37,000 |
$180,001 and over |
$62,685 plus 45 cents for each $1 over $180,000 |
$87,001 to $180,000 |
$21,800 plus 37 cents for each $1 over $87,000 |
| $87,001 to $180,000 |
$19,822 plus 37 cents for each $1 over $87,000 |
|
|
$180,000 and over |
$56,210 plus 45 cents for each $1 over $180,000 |
| $180,001 and over |
$54,232 plus 45 cents for each $1 over $180,000 |
|
|
|
|
Table
4: Income tax rates and thresholds between 2018–19 and 2021–22
| Australian
residents |
Foreign
residents |
Working
holiday-makers |
| Taxable income |
Tax payable |
Taxable income |
Tax payable |
Taxable income |
Tax payable |
| 0 to $18,200 |
Nil |
0 to $90,000 |
32.5 cents for each $1 |
0 to $37,000 |
15 cents for each $1 |
| $18,201 to $37,000 |
19 cents for each $1 over $18,200 |
$90,001
to $180,000 |
$29,250 plus 37 cents for each $1 over $90,000 |
$37,001 to $90,000 |
$5,550 plus 32.5 cents for each $1 over $37,000 |
| $37,001 to $90,000 |
$3,572 plus 32.5 cents for each $1 over $37,000 |
$180,001 and over |
$62,550 plus 45 cents for each $1 over $180,000 |
$90,001
to $180,000 |
$22,775 plus 37 cents for each $1 over $90,000 |
| $90,001
to $180,000 |
$20,797 plus 37 cents for each $1 over $90,000 |
|
|
$180,000 and over |
$56,075 plus 45 cents for each $1 over $180,000 |
| $180,001 and over |
$54,097 plus 45 cents for each $1 over $180,000 |
|
|
|
|
Table 5: Income tax rates and thresholds in 2022-23
and 2023-24
| Australian residents |
Foreign residents |
Working holiday-makers |
| Taxable income |
Tax payable |
Taxable income |
Tax payable |
Taxable income |
Tax payable |
| 0 to $18,200 |
Nil |
0 to $120,000 |
32.5 cents for each $1 |
0 to $41,000 |
15 cents for each $1 |
| $18,201 to $41,000 |
19 cents for each $1 over $18,200 |
$120,001
to $180,000 |
$39,000 plus 37 cents for each $1 over $120,000 |
$41,001
to $120,000 |
$6,150 plus 32.5 cents for each $1 over $41,000 |
| $41,001
to $120,000 |
$4,332 plus 32.5 cents for each $1 over $41,000 |
$180,001 and over |
$61,200 plus 45 cents for each $1 over $180,000 |
$120,001
to $180,000 |
$31,825 plus 37 cents for each $1 over $120,000 |
| $120,001
to $180,000 |
$30,007 plus 37 cents for each $1 over $120,000 |
|
|
$180,000 and over |
$54,025 plus 45 cents for each $1 over $180,000 |
| $180,001 and over |
$52,207 plus 45 cents for each $1 over $180,000 |
|
|
|
|
Table 6: Income tax rates and thresholds in 2024-25
and later income years
| Australian residents |
Foreign residents |
Working holiday-makers |
| Taxable income |
Tax payable |
Taxable income |
Tax payable |
Taxable income |
Tax payable |
| 0 to $18,200 |
Nil |
0 to $200,000 |
32.5 cents for each $1 |
0 to $41,000 |
15 cents for each $1 |
| $18,201 to $41,000 |
19 cents for each $1 over $18,200 |
$200,001
and over |
$65,000 plus 45 cents for each $1 over $200,000 |
$41,001 to
$200,000 |
$6,150 plus 32.5 cents for each $1 over $41,000 |
| $41,001
to $200,000 |
$4,332 plus 32.5 cents for each $1 over $41,000 |
|
|
$200,001
and over |
$57,825 plus 45 cents for each $1 over $200,000 |
| $200,001 and
over |
$56,007 plus 45 cents for each $1 over $200,000 |
|
|
|
|
Consequential amendments and other
provisions
1.24
The bill also makes a number of consequential amendments to the tax law
to reflect the proposed changes relating to the introduction of the Personal
Income Tax Plan.[19]
1.25
The repeal of Part IV of the ITRA 1986 applies in relation to the
2017–18 income year and later years. It does not affect the operation of the
temporary budget repair levy in prior years when it was operative.[20]
1.26
A number of the amendments to income tax rate thresholds made by the
bill only apply to specified periods. As such, schedules 1 and 2 contain
amendments to repeal these provisions two years after they have ceased to apply
and remove related references that have become redundant. This ensure that tax
law is not unnecessarily expanded and made more complex for the reader by
keeping redundant provisions.[21]
Human rights implications
1.27
The bill is compatible with human rights and does not raise any human
rights issues.[22]
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