2020 Federal Budget: Accelerated tax breaks take centre stage

The eagerly anticipated 2020 Federal Budget announcement this week did not flatter to deceive with the government unveiling their medium to long term recovery plan in two phases. An initial recovery phase stimulating job creation will be followed by a period of debt reduction and stabilisation.

The Australian Government like most around the world is planning to increase the debt to GDP ratio by a staggering 8% to 44% by 2024 to cushion the blow of the COVID-19 pandemic. Thankfully, Australia appears to be in a stronger position than many of its counterparts around the world in this regard.

 

Key tax breaks from the 2020 Federal Budget

The main headline to hail from the budget was the plan to accelerate the increase in personal income tax thresholds initially scheduled to occur in 2022.

The legislation is roundly expected to pass given the implied support from the opposition. If enacted the top threshold of both the 19% & 32.5% income tax brackets will be increased to the levels outlined below:

• an increase to the low income tax offset (LITO) from $445 to $700 and adjust the phase out rules;
• an increase to the top threshold of the 19% personal income tax bracket from $37,000 to $45,000; and
• an increase to the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.

 

Savings will be significant with those earning $40,000 per annum saving $1,209 per annum (21% less tax) and those earning more than $120,000 or above expected to save $2,430 per annum (a lower percentage saving).

 

2020 Federal Budget: Savings under the Tax Cuts for Individuals (with No Children)

INCOME	2020-21 TAX SAVINGS
$40,000	$1,209
$60,000	$2,415
$80,000	$2,160
$100,000	$2,310
$125,000	$2,460
$150,000	$2,430
$200,000	$2,430
$250,000	$2,430

 

Want to know how much income tax you or an employee will save?  Head to abc.com.au and complete the Budget 2020 Income Tax Calculator.

 

Changes to Tax Scales

The new tax scales are outlined below with further increases to come in from FY2024-25.

 

Tax Scales for 2020-21 to 2023-24

TAX RATE (%)	THRESHOLDS
0%	$0 – $18,200
19%	$18,201 – $45,000
32.5%	$45,001 – $120,000
37%	$120,001 – $180,000
45%	$180,001
LITO	Up to $700
LMITO	Up to $1,080*

* Only available until the end of the 2020-21 income year.

 

Tax Scales from 2024-25

TAX RATE (%)	THRESHOLDS
0%	$0 – $18,200
19%	$18,201 – $45,000
30%	$45,001 – $200,000
45%	$200,001+
LITO	Up to $700

 

 

Rebates and changes to PAYG calculations

Importantly the proposal has suggested the changes will come into force retrospectively beginning 1 July 2020. This will mean an immediate change to ongoing PAYG calculations as soon as the legislation is approved.

The legislation is tipped to pass just prior to Christmas this year, however, any rebates (adjustments) for PAYG for the year to date earnings will likely be delayed until tax time in July 2021. It is expected that employers will field a number of queries on this point from their employees hoping for an accelerated PAYG year to date adjustment prior to July 2021. There is currently no specific direction on this matter.

If you have any questions on how the income tax changes may impact your employees, please contact our business payroll advisory team for a complimentary 1:1 consultation on 1300 144 120 (Menu Option 2, then Option 2) or email info@employmentinnovations.com.