The Treasury Laws Amendment (Income Tax Relief) Bill 2016 (the Bill) has been introduced in the House of Representatives. It proposes to amend the Income Tax Rates Act 1986 to increase the third personal income tax threshold applying to personal income taxpayers. The rate of tax payable on individuals' taxable incomes from $80,001 to $87,000 would fall from 37% to 32.5%. The non-resident tax schedule would also be amended to increase the first income tax bracket to $87,000. The rate of tax of 37% would apply to taxable income between $87,001 and $180,000, and the top marginal rate of tax would remain at 45% for taxable income over $180,000. This measure was announced in the 2016–2017 Federal Budget.

On 2 September 2016, Federal Treasurer Scott Morrison announced that the ATO will now issue the new PAYG withholding tax schedules to reflect the lower personal tax rate in the Bill.

Employers will be required to lower the amount of tax withheld for affected taxpayers to factor in the new lower tax rate effective from 1 October 2016, Mr Morrison said. Any tax overpaid beforehand will be refunded by the ATO on assessment after the end of the 2016–2017 financial year. "This means that contrary to suggestions in media reports […] all affected taxpayers will be able to obtain the benefit of the cut – not at the end of the year but within one month of new PAYG withholding tax schedules being published", the Treasurer said.

Shortly following the Treasurer's announcement, the ATO registered Taxation Administration Act Withholding Schedules October 2016 (2 September 2016). This instrument contains eight withholding schedules and applies from 1 October 2016.

Tax rates summarised

The currently legislated rates for 2015–2016 and the proposed new personal tax rates and thresholds for 2016–2017 (including the 2% temporary budget repair levy, but excluding the 2% Medicare levy) are shown in the following tables.

Personal income tax rates and thresholds

  2015-2016   2016-2017  
  Threshold ($)
Rate (%)
Threshold ($)
Rate (%)
First Rate
0 -18,200 0 0 - 18,200
0
Second Rate
18,201 - 37,000
19 18,201 - 37,000
19
Third Rate
37,001 - 80,000
32.5 37,001 - 87,000
32.5
Fourth Rate
80,001 - 180,000
37 87,001 - 180,000
37
Fifth Rate
180,001 47 180,001 47

With Medicare levy included, the top marginal rate is 49% from 1 July 2014 to 30 June 2017.

The following table shows the proposed rates for the 2016–17 year (including the 2% temporary budget repair levy, but excluding the 2% Medicare levy).

2016-2017

Taxable Income ($)

Tax Payable
0 - 18,000
Nil
18,201 - 37,000
Nil + 19% of excess over $18,200
 37,001 - 87,000
$3,572 + 32.5% of excess over $37,000
87,001 - 180,000
$19,822 + 37% of excess over $87,000
180,000+ $54,232 + 47% of excess over $180,000

Finally, the following table shows the proposed tax rates for non-residents (including the temporary budget repair levy) for the 2016–2017 year.

 2016-2017

Taxable Income ($)
Tax Payable
0 - 87,000
32.5%
87,001 - 180,000
$28,275 + 37% of excess over $87,000
180,001+ $62,685 + 47% of excess over $180,000

Date of effect

This measure applies to the 2016–2017 income year and later years.

Source: Treasury Laws Amendment (Income Tax Relief) Bill 2016, before the House of Representatives as at 14 September 2016, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;page=0;query=BillId%3Ar5683%20Recstruct%3Abillhome; Treasurer's media release, "Tax relief for average full-time wage earners to be delivered within weeks", 2 September 2016, http://sjm.ministers.treasury.gov.au/media-release/088-2016/; Taxation Administration Act Withholding Schedules October 2016, registered 2 September 2016, https://www.legislation.gov.au/Details/F2016L01380.