The Personal Income Tax Plan introduced in the 2018-19 Budget provided for cuts to personal income tax rates, to be delivered in three stages. Stage 1 has applied since 1 July 2018. Stage 2 was scheduled to apply from 1 July 2022, and Stage 3 from 1 July 2024.
Now, as part of measures to stimulate the economy and support taxpayers through a financial and economic recovery from COVID-19, legislation has been passed by the Federal Government to bring forward Stage 2 to apply from 1 July 2020. Stage 3 remains scheduled for 1 July 2024.
Here we summarise the changes that have been implemented and provide some examples of the impact on personal income tax bills and your regular pay that result from those changes.
The table below shows the updates to the personal income tax brackets over the three stages, as currently legislated.
As examples of the new tax brackets in action, annual tax for those with an annual income of:
- $45,000 will reduce by $1,080 from the 2020-2021 financial year onward
- $65,000 will reduce by $1,080 from the 2020-2021 financial year onward, then by a further $500 from the 2024-2025 financial year onward
- $85,000 will reduce by $1,080 from the 2020-2021 financial year onward, then by a further $1,000 from the 2024-2025 financial year onward.
Tax offsets
Changes to the personal income tax offsets were scheduled in the original Stage 2 in the Personal Income Tax Plan. Changes have been made but they are different to what was originally planned.
- The low and middle income tax offset (LMITO) of up to $1,080 will be retained for a further year (2020-2021), instead of being repealed as part of Stage 2.
- The low income tax offset (LITO) will increase from a maximum of $445 to a maximum of $700, from 2020-2021 onward, instead of only increasing in the 2022-2023 year.
Tax tables
The changes to personal income tax under Stage 2 have been incorporated into updated PAYG tables, which are to be used for salaries and wages paid on or after 13 October 2020. This means that employees can start to benefit from the tax cuts quickly, instead of having to wait until they lodge the applicable tax return. Employers have until 16 November 2020 to ensure the new PAYG rates are being used in their payroll.
Eager to see what impact the new tax tables will make to your pay packet? Below we show what increase to their net pay employees receiving regular payments may expect, depending on whether they are paid weekly, fortnightly or monthly and the amount they are paid (please note all figures are based on the tax free threshold being claimed).
Fortnightly pay
Monthly pay
If you have any questions about the personal income tax cuts, you can call us on 03 5339 3200 or contact us here.
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