Personal tax and superannuation

Federal Budget Tax | Analysis and insights

Key highlights

- No changes to personal income tax rates and thresholds, however indexation of the Medicare Levy Surcharge and Private Health Insurance Rebate income thresholds will resume from 1 July 2023.
- Low income earners will also be eligible for a Medicare Levy exemption on eligible lump sum payments from 1 July 2024.
- Better targeted superannuation concessions from 1 July 2025 to provide a system that is more sustainable and fairer, anticipated to affect less than 0.5 per cent of Australians.
- Amendments to the former Government’s proposed measure relating to non-arm’s length expenditure incurred by superannuation funds.

The 2023-24 Budget held no significant surprises from an individual tax perspective and reaffirmed Stage 3 tax cuts are still due to commence on 1 July 2024, and the previously announced measure to better target superannuation concessions.

Personal income tax rates and thresholds

There were no changes in respect of existing personal income tax rates and the already legislated stage 3 tax cuts will continue to apply from 1 July 2024.

It is noted that the Low Middle Income Tax Offset (LMITO), which provided a tax offset of between $675 and $1,500 in the 2021-22 income year, is no longer available in the current 2022-23 income year and future income years. Low Income Tax Offset (LITO), however, is still available in the 2022-23 financial year, providing a tax offset of up to $700 for those earning less than $66,667.

Under stage 3 of the former Government’s personal income tax plan, all taxpayers earning over $45,000 and up to $200,000 will pay a marginal rate of tax of 30 per cent from 1 July 2024. This effectively removes the current 37 per cent tax bracket, while taxpayers earning over $200,000 will be subject to a 45 per cent marginal rate of income tax.

For a comparison between current income tax rates and the changes that will occur under the stage 3 measures, refer to the table below.

Table 1: Income tax rates for Australian tax residents

	Thresholds from 1 July 2020 to 30 June 2024	Thresholds from 1 July 2024
Rate (%)	Income range ($)	Income range ($)
Nil	0 - 18,200	0 - 18,200
19	18,201 - 45,000	18,201 - 45,000
30	N/A	45,001 - 200,000
32.5	45,001 - 120,000	N/A
37	120,001 - 180,000	N/A
45	>180,000	>200,000

The above rates do not include the Medicare Levy of two per cent.

Medicare levy, surcharge and private health insurance rebate

The Medicare levy low-income thresholds for singles, families, seniors and pensioners will increase for the 2022-23 income tax year as follows:

individuals $24,276 (increased from $23,365)
families $40,939 (increased from $39,402), with an additional $3,760 for each dependent child or student (increased from $3,619)
single seniors and pensioners $38,365 (increased from $36,925), and
the family threshold for seniors and pensioners will be increased to $53,406 (increased from $51,401) plus $3,760 for each dependent child or student (increased from $3,619).

The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024. This measure will ensure low-income taxpayers do not pay higher amounts of the Medicare levy as a result of receiving an eligible lump sum payment, for example as compensation for underpaid wages.

To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the two most recent years to which the lump sum accrues. Taxpayers must also satisfy the existing eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least ten per cent of the taxpayer’s income in the year of receipt.

Individuals who earn over a certain income threshold and do not have an appropriate level of private patient hospital cover may also be liable for the Medicare Levy Surcharge. Indexation of the income thresholds for the Medicare Levy surcharge has been paused since the 2014-15 year, however it will recommence from 1 July 2023. Refer here for the rates and thresholds for the 2023-24 income year.

Similarly, the indexation of the income thresholds used to determine the tiers for the private health insurance rebate will recommence from 1 July 2023. Refer here for the income thresholds for the 2023-24 income year.

Better targeted superannuation concessions

From 1 July 2025, the concessional tax rate which will be applied to future earnings for member superannuation balances above $3 million will be increasing to the headline tax rate of 30 per cent, which remains lower than the top marginal tax rate of 45 per cent.

The key features of this proposal are:

the relevant member will be assessed personally with an additional 15 per cent tax on the proportional increase in their total superannuation balance
the proposed application of this additional tax includes unrealised earnings included in the member’s total superannuation balance with no reference to any capital gains tax discount
there is no change to how the superannuation tax will be calculated within the relevant superannuation fund which is currently 15 per cent on earnings, 10 per cent on capital gains for assets held more than 12 months and nil if supporting a retirement phase income stream
individuals will have the choice of either paying the additional tax personally or from their superannuation funds. Individuals who hold multiple superannuation funds can elect the fund from which the tax is paid. This tax will be separate from an individual’s personal income tax, and
the current contribution cap limits continue to apply.

The $3 million superannuation limit will be applied on a per person basis, across all superannuation accounts held, based on a members’ total superannuation balance and does not limit the amount of money an individual can hold in superannuation. Importantly, interests in defined benefit schemes will be appropriately valued and have earnings taxed commensurately in comparison to other similar interests.

The consultation process in respect of this proposal has now closed and we await release of draft legislation.

Changes to superannuation guarantee entitlements

In addition to the already legislated increase in the minimum superannuation guarantee (SG) rate from 10.5 per cent to 11 per cent from 1 July 2023, the Government has announced that from 1 July 2026, employers will be required to pay their employees’ SG entitlements at the same time as their salary and wages. See Business and investment for further details.

Non-arm’s length income amendment

The Government will amend measures announced by the former Government in respect of the non-arm’s length income (NALI) provisions which applies to expenditure incurred by superannuation funds.

Currently, where expenditure is caught under a non-arm’s length arrangement either a portion or in some instances all of a superannuation fund's income is taxed at the top marginal tax rate of 45 per cent rather than the concessional rate of 15 per cent. This is an integrity measure to ensure that superannuation earnings are not inflated to attract the concessional rate of tax through non-arm’s length dealings.

The proposed amendments will:

limit income (excluding contributions) of self-managed superannuation funds (SMSFs) and small Australian Prudential Regulation Authority (APRA) regulated funds that are taxable as NALI, to twice the level of a general expense where it is too low compared to an arm’s length arrangement
exempt large APRA regulated funds from the NALI provisions for both general and specific expenses, and
exempt expenditure that occurred prior to the 2018-19 income year which was when the expense rules were inserted in the integrity measure.

We await further information in relation to when this amendment will take effect, however, most of these changes are a result of recent consultation by Treasury.