As part of the national roll out of tax incentives and changes brought forward by Covid-19, the individual tax rates for Australian residents were also adjusted. The government implemented a Personal Income Tax Plan which will roll out over the next seven years which is designed to provide tax relief for Australian residents in the lower income tax groups.
Who Is An Australian Resident?
An Australian resident for taxation purposes means individuals who have always lived in Australia, or have come to Australia to live permanently. You must have lived in Australia for six months or more and have worked in one job and lived in the same residence. You can also be an overseas student who has come to Australia to study and enrolled in a course that is more than six months long.
If you don’t intend to stay in Australia, but have lived here for more than six months, or go overseas temporarily and do not set up another home overseas, you are generally classified as an Australian resident for taxation purposes.
To determine if you’re an Australian resident, there are four tests for residency:
- Resides test
- Domicile test
- 183 day test
- The commonwealth superannuation test
2022 Personal Income Tax Rates
The 2022 personal income tax rates for Australian residents are as follows:
- $0 to $18,200: No Income Tax
- $18,201 to $45,000: 19 cents for every $1 over $18,200
- $45,001 to $120,000: $5,092 + 32.5 cents for every $1 dollar over $45,000
- $120,001 to $180,000: $29,467 + 37 cents for each $1 beyond $120,000
- $180,001 and up: $51,667 + 45 cents for every dollar over $180,000
A Medicare Levy (ML) is charged on top of the income tax you pay and is used for the Australian public health system. This is an additional 2% of your taxable income. Depending on your circumstances, you may get a reduction.
Your Medicare Levy is deducted as part of your PAYG withholding from your employer and is calculated in your tax return. Any over payments are refunded in the tax return when lodged.
Medicare Levy Surcharge
You may have to pay for the Medicare Levy Surcharge (MLS). This is an extra surcharge levied on your taxable income, total reportable fringe benefits and family trust income amounts. The base threshold is $90,000 for singles and $180,000 for adults, and is added in increments of 1%, 1.25% and 1.5%. There are exemptions. Your private health insurance will reduce any MLS charged.
Pro Tax Tip: If you are a high income earner, it may be beneficial to take out private health insurance to offset the MLS.
What Do The Changes To The Tax Rates Mean?
The adjusted personal income tax rates are designed to help lower the tax many Australians are obligated to pay. If you are eligible to receive the Low and Middle Income Tax Offset (LMITO) and Low Income Tax Offset (LITO), you will benefit at next year’s tax time.
The LMITO was implemented in 2019 and will be retained until 30 June 2022. The rates are:
- Income of up to $37,000: $255 offset
- $37,001 to $48,000: A $255 offset + 7.5 cents for every dollar earned over $37,000
- $48,001 to $90,000: $1,080 tax offset
- $90,001 to $126,000: $1,080 offset minus three cents for every dollar over $90,000
- All incomes above $126,000 will not have any tax offset.
Stage 3 Changes
The current changes to the tax rate have been designed to ease the strain off low to middle income earners, as well as increase an estimated additional 50,000 jobs by the end of 2021-22, and boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22.
Further tax cuts in 2024 will result in the 37% tax rate being abolished. The top 45% bracket will start from $200,000 and the 32.5% rate will be cut to 30% for all income between $45,000 and $60,000.
An expected 40% of taxpayers earning under $60,000 will share in $3.1b in tax relief between 2024-25 and 2031-32.
The tax changes don’t necessarily mean that’s the tax you will need to pay. You’ll still be able to claim tax deductions based on your work-related expenses. Most expenses fall under the larger umbrellas of:
- Car and vehicle travel
- Other travel
- Home office
- Clothing and laundry
- Subscriptions and licenses
- Professional fees and charges
There may be further tax deductions you can claim based on your type of employment or career. You can only claim the work ‑related part of expenses. You can’t claim a deduction for any part of the expense that relates to personal use.
- You must have a record to prove it
- You must have spent the money yourself and weren’t reimbursed by your employer
- It must be directly related to earning your income
ITP Accounting Professionals have helped Australian individuals and businesses for 50 years. There’s not a lot we don’t know about tax and finances. Phone 1800 367 487 and chat about your budgeting needs and how we can help you save on your tax dollar.