Personal income tax cuts brought forward

The federal government initially announced a seven year individual income tax plan in the 2018 federal budget.
The plan would run over three phases, introducing a temporary low and middle tax offset and eventually removing the 37% income tax bracket.
Subsequent federal budgets have altered this initial plan, and will be as follows for the 2020/21 and following income years.

 

Australian resident individuals – Tax rates

2020/21 income year
Minimum Maximum Tax on minimum Tax rate on excess
$18,200 0%
$18,201 $45,000 19%
$45,001 $120,000 $5,092 32.5%
$120,001 $180,000 $29,467 37%
$180,000 and above $51,567 45%

Australian resident individuals – Tax offsets

Low income tax offset (non-refundable)
Taxable income (TI) Amount/Calculation
$0 — $37,500 $700
$37,500 — $45,000 $700 – (TI – $37,500) × 5%
$45,000 — $66,667 $325 – (TI – $45,000) × 1.5%
$66,667 and above $0
 

Low and middle income tax offset (non-refundable)

Taxable income (TI) Amount/Calculation
$0 — $37,000 $255
$37,000 — $48,000 $255 + (TI – $37,000) × 7.5%
$48,000 — $90,000 $1,080
$90,000 — $126,000 $1,080 – (TI – $90,000) × 3%
$126,000 and above $0

 

 

Effective tax-free threshold

The new effective tax-free threshold for individual Australian tax residents is $23,226 for the 2020/21 income year.

Individual non-residents

Where relevant, the income tax brackets have also changed for individual non-resident taxpayers. Generally, non-residents pay income tax on every dollar of Australian sourced income. The first bracket at 32.5% tax now has a range of $0 to $120,000.

ATO and tax withholding tables

As this change in tax rates is occurring during the income year, the ATO will subsequently update their tax tables. At the time of writing, the ATO have announced that these tables will be available during the week ending 16 October 2020 as bipartisan support has been declared.

The ATO has also announced that they will be working with payroll software providers to ensure the above changes are reflected in payroll runs as soon as practicable. If you are completing payroll for clients, your payroll software provider should be able to inform you when the update will take place.

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