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Tax relief for middle income Australians

The Government is proposing to provide those on incomes between $37,000 and $126,000 with tax savings, by bringing forward and amending its already legislated seven-year tax plan announced in last year’s budget. The proposal takes the form of a three-stage plan that started in 2018, and goes through to 2024. Here we summarise the key changes.

Stage 1: Low and middle income tax earners get immediate relief

If you’re earning between $18,200 and $126,000 a year, you will receive some form of tax cut. The proposal will provide tax relief of up to $1,080 for singles, or up to $2,160 for dual income families.

The Government says this will benefit more than 10 million Australians.

Most of the tax relief will benefit those earning between $48,001 and $90,000, who will get the full $1,080 offset. This will be paid following assessment of your tax return each year, until the 2021/22 financial year.

What’s already in place

The first stage of the Government’s tax plan started on 1 July 2018 with the following changes.

  • An increase of the 32.5% tax bracket upper threshold from $87,000 to $90,000. This represents a saving of up to $135.
  • The introduction of the temporary non-refundable Low and Middle Income Tax Offset of up to $530 p.a.
What’s proposed

The Government has now proposed to increase the Low and Middle Income Tax Offset further up to a maximum of $1,080. Starting this financial year (2018/19) the proposal is:

Taxable Income

Maximum Offset p.a.

$37,000 or less


$37,001 - $48,000

$255 – $1,080

$48,001 - $90,000


$90,001 - $126,000

$1,080 decreasing gradually until zero

Case Study of Jill

Jill is 53, a school teacher and earns $80,000 plus 9.5% superannuation. At this salary level, Jill receives the full Low and Middle Income Tax Offset meaning $1,080 in extra take-home pay in the financial year 2018/19. So what can Jill do with this extra $1,080? She has a few options.

  1. Spend it on something she’s always wanted, like a holiday.
  2. Pay $1,080 extra off the mortgage, which can then compound over time.
  3. Contribute more into super. If Jill is not already using up her $25,000 concessional contribution (before-tax) cap, she could make a concessional contribution to super of $1,649. As Jill can claim a tax deduction for this type of super contribution, her take- home pay is reduced by $1,080 (the amount of the Low and Middle Income Tax Offset) due to the income tax saving. Jill will be taxed 15% on the $1,649 as it goes into super, which means she adds $1,402 to her super balance, which can then compound over time.
How these three options could look like over the next 15 years

Assuming Jill exercises one of these options every year, over the next 15 years, this is what her benefits are estimated to be.

Option 1:
Spend it

Option 2:
Reduce mortgage

Option 3:
Contribute to super

After 1 year – age 54




After 5 years – age 58




After 15 years – age 68




Assumes mortgage interest rate of 5.0%, and return on superannuation of 6.0% (after fees and earnings tax).

Stage 2: Protecting middle income Australians from bracket creep

Effective 1 July 2022

The next stage of the tax plan aims to protect middle income Australians from bracket creep by locking in the benefits of the Stage 1 tax savings.

From 1 July 2022, the 19% tax bracket is increasing from $37,000 to $41,000. The Government now proposes to increase this to $45,000.

Also from 1 July 2022, there will no longer be a Low and Middle Income Tax Offset.

There will only be a Low Income Tax Offset that will increase to $645. The Government now proposes to increase this further to $700. It will decrease at a rate of 5 cents per dollar between $37,500 and $45,000 (instead of 6.5 cents per dollar) and then at 1.5 cents per dollar between $45,000 and $66,667.


Stage 3: Paying less tax through a simpler tax system

Effective 1 July 2024

The good news is that the Government proposes to reduce the 32.5% marginal tax rate to 30%. The Government says that an estimated 94% of all taxpayers will face a marginal rate of no more than 30%.

Just as a reminder, according to the current law, the entire 37% tax bracket will be abolished and the threshold for the top marginal tax rate will increase to $200,000 (from $180,000).

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