Personal taxation measures
On Tuesday 25 October 2022, Treasurer Jim Chalmers handed down the 2022–2023 October Federal Budget, his first Budget.
While a Budget was handed down on 29 March 2022, this second Budget for 2022–2023 updates economic forecasts and outlines the new Labor Government’s priorities following the May 2022 Federal election.
The Budget sets out a five point plan for cost-of-living relief in the areas of child care; expanding paid parental leave; medicines; housing; and getting wages moving. While the Budget does not contain major tax changes it does seek to begin some “Budget repair work” via tax integrity measures “By making sure multinationals pay a fairer share of tax in Australia, by extending successful tax compliance programs, and by giving the ATO the resources they need to crack down on tax dodging. Together, these initiatives save a further $4.7 billion over four years”, Dr Chalmers said.
Personal tax rates unchanged for 2022–2023
In the Budget, the Government did not announce any personal tax rate changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.
The 2022–2023 tax rates and income thresholds for residents are unchanged from 2021–2022:
- taxable income up to $18,200 – nil;
- taxable income of $18,201 to $45,000 – nil plus 19% of excess over $18,200;
- taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
- taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
- taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.
Stage 3 tax cuts: from 2024–2025
The Budget did not announce any changes to the Stage 3 personal income tax changes which are set to commence from 1 July 2024 as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one large tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less
Low income offsets
Low and middle income tax offset (not extended)
The 2022–2023 October Budget did not announce any extension of the low and middle income tax offset (LMITO) to the 2022–23 income year. The LMITO has now ceased and been fully replaced by the low income tax offset (LITO).
The March 2022–2023 Budget had increased the LMITO by $420 for the 2021–2022 income year so that eligible individuals (with taxable incomes below $126,000) received a maximum LMITO up to $1,500 for 2021–2022 (instead of $1,080).
With no extension of the LMITO announced in this October Budget, 2021–2022 was the last income year for which that offset was available.
As a result, low-to-middle income earners may see their tax refunds from July 2023 reduced by between $675 and $1,500 (for incomes up to $90,000 but phasing out up to $126,000), all other things being equal.
Low income tax offset (unchanged)
No changes were made to the LITO in the 2022–2023 October Budget. The LITO will continue to apply for the 2022–2023 income year and beyond. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022–2023, but the new LITO was brought forward in the 2020 Budget to apply from the 2020–2021 income year.
The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Paid parental leave to be expanded
The Government will expand the paid parental leave (PPL) scheme from 1 July 2023 so that either parent is able to claim the payment, and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.
From 1 July 2024, the Government will start expanding the PPL scheme by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026. Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks of paid parental leave.
The amount of paid parental leave available for families will increase up to a total of 26 weeks from July 2026, benefiting over 180,000 families each year. An additional two weeks will be added each year from July 2024 to July 2026, increasing the overall length of paid parental leave by six weeks.
To further increase flexibility, from July 2023 parents will be able to take Government paid leave in blocks, as little as a day at a time, with periods of work in between, so parents can use their weeks in a way that works best for them.
Further changes to legislation will also support more parents to access the PPL scheme. Eligibility will be expanded through the introduction of a $350,000 family income test, which families can be assessed under if they do not meet the individual income test. Single parents will be able to access the full entitlement each year. This will increase support to help single parents juggle care and work.
Increased Child Care Subsidy rate for household income up to $530,000
The Government will provide $4.7 billion over four years from 2022–2023 (and $1.7 billion per year ongoing) to deliver cheaper child care and reduce barriers to workforce participation. This includes $4.6 billion over four years from 2022–2023 to:
- increase the maximum Child Care Subsidy (CCS) rate from 85% to 90% for families for the first child in care and increase the CCS rate for all families earning less than $530,000 in household income. From July 2023, CCS rates will lift from 85% to 90% for families earning less than $80,000. Subsidy rates will then taper down one percentage point for each additional $5,000 in income until it reaches 0% for families earning $530,000. Families will continue to receive existing higher subsidy rates for their second and subsequent children aged five and under in care, up to 95%;
- maintain current higher CCS rates for families with multiple children aged five or under in child care, with higher CCS rates to cease 26 weeks after the older child’s last session of care, or when the child turns six years old;
- task the ACCC to undertake a 12 month inquiry into the cost of child care and the Productivity Commission to conduct a comprehensive review of the child care sector to improve the transparency of the child care sector by requiring large providers to publicly report CCS related revenue and profits.
The Government will also provide $43.9 million over four years from 2022–2023 for measures to improve early childhood outcomes for First Nations children.
For expert advice and assistance in dealing with your Tax Law and Budget Updates in Australia, please contact Mathews Tax Lawyers on 1800 685 829
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.