In the recent 2020 Budget, the Federal Government announced changes to individual tax rates for the 2020/21 income year, as part of a 3-step 7-year personal income tax reform plan targeted at low and middle income earners.
It brought forward Stage 2 of the plan by two years, commencing on 1 July 2020, to help provide immediate relief to individuals and support economic recovery in light of the COVID-19 pandemic.
Also as part of the 3-step plan, the Government has increased the existing Low Income Tax Offset (‘LITO’) from AUD 455 to AUD 700. The LITO will be recovered at a rate of 5 cents per dollar between taxable incomes of AUD 37,500 and AUD 45,000 and an additional 1.5 cents per dollar from taxable incomes between AUD 45,001 and AUD 66,667.
Lastly, the Low and Middle Income Tax Offset (‘LMITO’), which was previously intended to be removed upon implementation of Stage 2, will remain for the 2020/21 year. The LMITO remains unchanged - for taxable income between AUD 37,001 and AUD 126,000, an amount of between AUD 255 and AUD 1,080 will be available, in addition to LITO.
Australian resident Individuals
|
Taxable Income bracket (AUD ) |
Tax (AUD ) |
|---|---|
|
0 – 18,200 |
0 |
|
18,201 – 45,000 |
19c for each AUD 1 over AUD 18,200 |
|
45,001 – 120,000 |
5,092 plus 32.5c for each AUD 1 over 45,000 |
|
120,001 – 180,000 |
29,467 plus 37c for each AUD 1 over 120,000 |
|
180,001 & over |
51,667 plus 45c for each AUD 1 over 180,000 |
Australian non-resident Individuals
|
Taxable Income bracket (AUD ) |
Tax (AUD ) |
|---|---|
|
0 – 120,000 |
32.5c for each AUD 1 |
|
120,001 – 180,000 |
39,000 plus 37c for each AUD 1 over 120,000 |
|
180,001 & over |
61,200 plus 45c for each AUD 1 over 180,000 |
Australian working holiday maker individuals
|
Taxable Income bracket (AUD ) |
Tax (AUD ) |
|---|---|
|
0 – 45,000 |
15c for each AUD 1 |
|
45,001 – 120,000 |
6,750 plus 32.5c for each AUD 1 over 45,000 |
|
120,001 – 180,000 |
31,125 plus 37c for each AUD 1 over 120,000 |
|
180,001 & over |
53,325 plus 45c for each AUD 1 over 180,000 |
*Note the above rates do not include the Medicare levy.
Australian resident Individuals
|
Taxable Income bracket (AUD ) |
Tax rate (%) |
|---|---|
|
AUD 0 - AUD 18,200 |
0% |
|
AUD 18,201 - AUD 45,000 |
19% |
|
AUD 45,001 - AUD 200,000 |
30% |
|
N/A |
37% |
|
AUD 200,001+ |
45% |
The changes to the tax thresholds have been incorporated into the Pay-As-You-Go withholding schedules and will apply to payments made to individuals from 13 October 2020.
As the changes to withholding are made part way through the income year, employers and other payers who were unable to immediately implement these changes into their payroll had until 16 November 2020 to do so. Although employers’ ‘Single Touch’ enabled payroll software should automatically reflect these changes, it is crucial to confirm this immediately.
Individuals will receive their entitlement to the reduced tax payable for the entire 2020/21 income year (i.e. for the period 1 July 2020 up to October/November 2020) when they lodge their income tax return.
Stephanie Sims
stephanie.sims@bdo.com.au
Debbie Cochrane
debbie.cochrane@bdo.com.au
Eng Hua Ng
enghua.ng@bdo.com.au