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A centrepiece of the Federal Budget announced by the Treasurer on Wednesday night was the move to bring forward Stage 2 of the Personal Income Tax Plan to 1 July 2020, resulting in lower taxes for individuals backdated to this date.

The legislation to implement these tax cuts for individuals was introduced into the Parliament on Wednesday. Since this time, the Federal Labor Party has written to the Australian Taxation Office (ATO) confirming its support for the tax cuts, assuring the ATO that the tax cuts will become law shortly.

The next question which employers will face from their employees is how and when they will receive their tax cut.

How Will the Tax Cuts be Delivered?

The ATO has commenced updating the tax tables to be used for the 2020-2021 financial year. Once these revised tax tables are published, employers will be required to incorporate the changes into their payroll processes and systems on a prospective basis.

The ATO will work closely with providers of payroll software to integrate the updated tax tables into the software so that the correct amount of reduced PAYG Withholding Tax is reflected in employees’ pays as soon as is practicable.

If you are using an online accounting/payroll software such as Xero or MYOB Essentials, the updated tax tables should be integrated automatically into the payroll process in the background without any action being required on the user’s end. If you are using a desktop product like MYOB AccountRight, early indications are that installation of a new update on your computer will be required before the updated tax tables can be integrated into the payroll process.

If you are not using a payroll software provider then the updated tax tables will need to be incorporated manually into your payroll process.

We recommend that you keep up to date with any future alerts or correspondence from your payroll software provider about timing of changes and any actions which may be required on your end to embed the updated tax tables into the payroll process.

When Will the Tax Cuts be Delivered?

The ATO anticipates that the updated tax tables will be ready for publication next week. This means that the tax cuts could begin to flow to employees through payroll within just a few weeks.

It is important to stress to employees however that the updated tax tables will not recoup any excess tax previously withheld from them since 1 July 2020. The updated tax tables are designed to ensure that employees have the correct amount of tax withheld from their pays going forward; because every employee’s tax profile is different, it is not feasible for the ATO to rectify any over-withholding which occurred since 1 July 2020. Employees will recoup any over-withheld amounts of tax during this financial year when they lodge their 2021 Income Tax Returns after 30 June 2021.

While it is unconventional for the Government to backdate tax rate changes during a financial year, the ATO is aiming to ensure that the changes are implemented as seamlessly as possible. At The Macro Group, we are ready to assist employers with the transition where possible.

Date published: 9 October 2020.

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