The Government will bring forward previously legislated changes to reduce personal income tax to take effect retrospectively from 1 July 2020. This measure is designed to stimulate the economy by increasing the disposable income available to individuals. The cuts will be a welcome boost to the local economy and is one of the key initiatives of the Government’s JobMaker Plan.
Income tax offset
The Government will increase the low income tax offset (LITO) for taxpayers with taxable incomes of less than $37,000 from $445 to $700. The LITO will be withdrawn at a rate of 5 cents per dollar of taxable income for those with taxable incomes between $37,000 and $45,000 and withdrawn at a rate of 1.5 cents per dollar for those with taxable incomes between $45,000 and $66,667.
The Government will also retain the low and middle income tax offset (LMITO) for the 2020-21 income year, providing a reduction in tax of up to $1,080. It provides a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less. The LMITO will increase at a rate of 7.5 cents for every dollar of taxable income between $37,000 and $48,000, and taxpayers with taxable incomes between $48,000 and $90,000 will receive the full $1,080. The LMITO will phase out at a rate of 3 cents per dollar for those taxpayers with taxable income between $90,000 and $126,000.
Tax rate changes
The Government proposes to bring forward the second stage of its personal income tax plan with retrospective effect from 1 July 2020. This measure will mean that the top threshold of the 19% tax bracket will increase from $37,000 to $45,000, and the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000. These changes mean that an employee on $50,000 will be $1,080 better off in 2020-21, whilst an employee on $120,000 will be $2,430 better off when compared to 2019-20.
Once the changes are implemented, taxpayers will receive more money in their regular pay packets (with a reduction in PAYG withholding rates) and should receive any residual benefit upon assessment of their 2020-21 income tax returns.
Stage 3 of the Government’s personal income tax plan remains unchanged and should commence from 1 July 2024.
Tax rates and thresholds for 2020-21 onwards
The table below summarises the announced personal tax rate and threshold changes (excluding the 2% Medicare levy) and shows the main changes to the tax rates announced as part of the Budget.
Tax rates and thresholds
| Rate | 2020-21
(announced in 2019-20 budget) |
2020-21
(announced in 2020-21 budget) |
2024-25
(previously announced) |
| 0% | $0 – $18,200 | $0 – $18,200 | $0 – $18,200 |
| 19% | $18,201 – $37,000 | $18,201 – $45,000 | $18,201 – $45,000 |
| 30% | N/A | N/A | $45,001 – $200,000 |
| 32.5% | $37,001 – $90,000 | $45,001 – $120,000 | N/A |
| 37% | $90,001 – $180,000 | $120,001 – $180,000 | N/A |
| 45% | $180,001+ | $180,001+ | $200,001+ |
| LITO | Up to $445 | Up to $700 | Up to $700 |
| LMITO | Up to $1,080 | Up to $1,080 |
Medicare levy low-income thresholds
For the 2020-21 income year, the Medicare levy low income threshold for singles will be increased to $22,801 (up from $22,398 in 2019-20). For couples with no children, the family income threshold will be increased to $38,474 (up from $37,794 in 2019-20). For each dependent child or student, the family income threshold will increase by $3,533 (up from $3,471 in 2019-20).
For single seniors and pensioners eligible for the seniors and pensioners tax offset, the Medicare levy low income threshold will be increased to $36,056 (up from $35,418 in 2019-20). The family threshold for seniors and pensioners will be increased to $50,191 (up from $49,304).
