New tax rates

The Government has passed legislation to change our personal tax rates. This has been a protracted process, particularly due to the election, but by the time the changes are fully implemented, our system will be greatly simplified.

Some clients have expressed understandable confusion as to what changes to rates were finally executed, so the following table may assist.

Firstly, there are the rates that applied in the 2018 year. These rates also originally applied at the beginning of the 2019 financial year, but changes were announced in the 2019 Budget. However, these changes were only passed into legislation after the recent election. This has probably been the source of most confusion.

The Government has effectively backdated the rates that will apply for 2019. This means many Australians will receive a larger than usual tax refund this year, as salary and wage earners were having tax deducted from their pay at the old higher rates. The Taxation Office will now calculate their actual tax payable at the new lower rates.

In 2023 there will be further changes, the upper threshold for the 32.5% marginal tax rate will increase from $90,000 to $120,000 and the upper threshold for the 19% rate will increase from $37,000 to $45,000.

Finally, commencing in the 2025 income year, stage three of the cuts will be implemented. It will result in a far simpler structure. The 37% marginal tax rate will be abolished entirely, and the old 32.5% tax rate will be reduced to 30% and apply to all incomes up to $200,000.

Rates and thresholds (Australian Tax Residents)

Tax Rate 2017-18 2018-19 to 2021-22 2022-23 to 2023-24
0% $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 – 37,000 $18,201 – 45,000
32.5% $37,001 – $87,000 $37,001 – 90,000 $45,001 – 120,000
37% $87,001 – $180,000 $90,001 – $180,000 $120,001 – $180,000
45% $180,001 and over $180,001+ $180,001+
Tax Rate 2024-25 onwards
0% $0 – $18,200
19% $18,201 – $45,000
30% $45,001 – $200,000
37% N/A
45% $200,001+

Low and Middle Income Tax Offset

The above rates do not take into account the effect of tax offsets, which actually reduce eligible taxpayers income tax obligations. You may recall politicians discussing a $1,080 tax refund for 2019?

The calculation is complicated, but basically any taxpayer earning less than $90,000 is eligible for a rebate up to a maximum of $1,080. This is not a refund as such, but as mentioned earlier, will result in either less tax payable or higher refunds in 2019 tax returns.

Most of the complication arises from the staging of these changes, but given the cost to the Budget, it is probably understandable that full implementation is delayed.