Personal income tax cuts

Personal income tax cuts

As widely predicted, the Government has brought forward stage 2 of its planned income tax cuts by two years. Originally intended to apply from 1 July 2022, the tax cuts will come into effect from 1 July 2020 (subject to the passage of the legislation). The Treasurer the Hon Josh Frydenberg anticipates more than 11 million taxpayers will get a tax cut backdated to 1 July this year.

At a cost of $17.8 billion over the forward estimates, bringing forward the tax cuts is a controversial move. The Government argues that the measure will “boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22.” Others in Parliament believe the measure rewards higher income earners and the money could be better spent elsewhere. The Senate will decide whether the Government’s plan comes to fruition.

Stage 3 of the Personal Income Tax Plan that simplifies and flattens the personal income system remains scheduled for 2024-25.

  Tax thresholds
Tax rate Current From 1 July 2020 From 1 July 2024
0% $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 $45,000 $18,201 – $45,000
30%   $45,001 – $200,000
32.5% $37,001 – $90,000 $45,001$120,000
37% $90,001 – $180,000 $120,001 – $180,000
45% >$180,000 >$180,000 >$200,000
LITO Up to $445 Up to $700 Up to $700

Bringing forward the personal income tax plan will:

  • Increase the top threshold of the 19% tax bracket to $45,000 (from $37,000)
  • Increase the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
  • Increase the low income tax offset from $445 to $700

In addition, the LMITO (low and middle income tax offset), which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000, will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.

If you need any assistance please contact your PrimeAccountant on 02 9415 1511 or email reception@primeadvisory.com.au.

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