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The Federal Budget has revealed that the Government plans to bring forward Stage 2 of its Personal Income Tax Plan lowering taxes for individuals from 1 July 2022 to 1 July 2020. This will result in a range of tax relief targeted towards low and middle income earners in order to play a role in Australia’s economic recovery.

This tax relief involves three changes:

Low Income Tax Offset
This offset has increased from $445 to $700 in the 2020-2021 year.

The Low-Income Tax Offset (LITO) provides a reduction to your total tax payable. Individuals earning $37,500 or less in taxable income will receive the full $700 offset. The amount of the offset then gradually will reduce as income rises until the entitlement ceases once taxable income exceeds $66,666.

If you are eligible for the Low-Income Tax Offset, this tax relief will be received when completing your 2021 Tax Return after 1 July next year.

Increase in Tax Bracket Thresholds

The 19% tax bracket

  • The 19% threshold bracket increased from $37,000 to $45,000 – providing relief of up to $1,080 per year

The 32.5% tax bracket

  • The 32.5% threshold bracket increased from $90,000 to $120,000 – providing additional relief of up to $1,350 per year

For employees affected by these tax bracket changes, tax relief will begin to be felt in the coming weeks through the withholding of less PAYG tax from wages and salaries. This means more after-tax money coming to you in your pay. For all other individuals affected, tax relief will be received when completing the 2021 Tax Return. If you have moved to a lower tax rate it will result in less tax to pay for the year.

Low & Middle Income Tax Offset
This offset also has been extended for another year into 2020-21, with the maximum benefit being $1,080 in addition to the LITO. Those earning between $48,000 and $90,000 in this financial year will receive the benefit of this tax relief when completing their 2021 tax return.

Stage 3 of the Personal Income Tax Plan (which abolishes the 32.5% tax bracket and applies a 30% marginal tax rate to incomes from $45,000 to $200,000) is still set to apply from 2024-25.

It is expected that 11 million Australians will benefit from this accelerated tax relief and will help stimulate the economy.

If you need assistance understanding what these changes mean for you, don’t hesitate to call us on 07 3844 5555 to discuss with a Macro team member today.


Date Published: 7 October 2020


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