Money in the pocket.
Money in the pocket.

Income tax cuts: what happens now

If you file your tax return from next week, you will get the full tax cut you are eligible for once it's been processed.

People earning $48,000 to $94,500 will receive the full $1080 available. Outside of that, it starts to differ.

It rises up from $255 for people earning $22,000 a year, and scales down to $135 for people earning between $94,500 and $126,400.

Everyone earning above $87,000 will pay $135 less tax due to a slight increase in the middle-income tax threshold already legislated last year.

What's next?

The next big change kicks in from July 1, 2022, locking in the offsets from this year but shifting bracket thresholds.

The 19 per cent tax bracket rises from $37,000 to $45,000, while the 32.5 per cent tax bracket rises from $90,000 to $120,000.

In most cases, what this practically means is that the tax offsets you receive this year are made permanent.

So, if you received a $1080 offset, you will keep getting it. Same for if you were getting $255 back and so on.

But, if you are earning more than $90,000, because the threshold will be lifted, you will get up to $2565 for workers earning $120,000.

After that, it doesn't matter what you earn, you will only pay $2565 less income tax.

What happens in five years?

Stage 3 is the final and biggest part of the reform package, costing $95 billion and coming in from July 1, 2024.

It sees the 37 per cent tax bracket abolished entirely and the 32.5 per cent rate dropped to just 30 per cent.

It means that anyone earning between $45,000 and $200,000 will pay a maximum 30c tax on every dollar they earn.

This accounts for 70 per cent of Australian taxpayers. The idea is that, as your pay goes up, you are not forced on to a higher tax bracket.

The threshold changes and reduced tax rate mean everyone will pay less tax than they do today.

Someone earning $45,000 will pay $1080 less tax than today, a salary of $100,000 will attract $3040 less tax, increasing up to $11,640 for people earning $200,000 and above.



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