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Times are a-changin'

Updated: Jun 27, 2018

The 2018 Federal Budget was announced a month ago today. Your guide to what the ugdet means for individuals next year and beyond.

The Federal Government's budget included a raft of changes to tax for individuals. They have proposed a three step Personal Income Tax Plan, aimed to benefit low and middle income Australians; increased medicare levy thresholds; and the removal of tax deductions for expenses associated with holding vacant land.


Step 1: Targeted tax relief for low and middle income earners

The Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset for the 2019-2022 income years.

The benefit of the Low and Middle Income Tax Offset is in addition to the Low Income Tax Offset.


Step 2. Protecting middle income Australians from bracket creep

The Government has proposed the following changes to the personal income tax rates:

From 1 July 2018, the Government will increase the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000.


From 1 July 2022, the Government will extend the 19% personal income tax bracket from $37,000 to $41,000; and further increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.


The Government has also proposed an increase to the Low Income Tax Offset from $445 to $645 from 1 July 2022. This offset will reduce at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between $41,000 and $66,667.


Step 3: Ensuring Australians pay less tax by making the system simpler

In the third step of the Personal Income Tax Plan the Government will remove the 37% tax bracket entirely. From 1 July 2024, the top threshold of the 32.5% personal income tax bracket will be extended to apply to taxable incomes of $41,001 to $200,000. Taxpayers with taxable incomes exceeding $200,000 will pay tax at the top marginal rate of 45%.

Changes to Medicare Levy low-income Thresholds

The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2017-18 income year.

  • The threshold for singles will be increased to $21,980;

  • The family threshold for will be increased to $37,089;

  • The threshold for single seniors and pensioners will be increased to $34,758; and

  • The family threshold for seniors and pensioners will be increased to $48,385.

For each dependent child or student, the family income thresholds increase by a further $3,406, instead of the previous amount of $3,356.


Other Changes Affecting Individuals

Supplementary amounts (such as pension supplement, rent assistance and remote area allowance) paid to a veteran, and full payments (including the supplementary component) made to the spouse or partner of a veteran who dies, are exempt from income tax from 1 May 2018.


From 1 July 2019, tax deductions will not be allowed for expenses associated with holding vacant land that is not genuinely used to earn assessable income.


Quick Note

The Government has announced that it will not proceed with the previously announced increase in the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019.

Consequential changes to other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also not proceed.


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