New income tax rates
We want to remind our clients that as part of the Federal Budget delivered in October 2020 there are significant changes that were recently brought forward and will also affect you as a taxpayer.
Back in the 2018 Federal Budget, it was announced the Personal Income Tax Plan, which involved significant income tax cuts for the next seven years. The purpose was to lower taxes for middle-income earners and at the same time make the entire tax system easier to understand.
The plan involved three stages, and the 2020 Federal Budget was the second stage of that plan. It applies to the 2020/21 financial year. Here is a summary of these stages:
Stage 1: From 2018/19 to 2019/20 financial year
Implemented a Low and Middle-Income Tax Offset (LMITO) set to a maximum of $1080.
Stage 2:
The Low and Middle-Income Tax Offset (LMITO) is retained but only until 2020/21.
The Low Income Tax Offset (LITO) is higher now, from $455 to $700.
The upper threshold is raised to each income bracket. See table below.
| Taxable Income | Tax On This Income |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 19c for each $1 over $18,200 |
| $45,001 to $120,000 | $5,092 plus 32.5c for each $1 over $45,000 |
| $120,001 to $180,000 | $29,467 plus 37c for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45c for each $1 over $180,000 |
Stage 3: Will be implemented in the 2024/25 financial year.
It is planned that the 32.5% tax rate will increase for the upper threshold of the 30% tax bracket. The current 37% tax bracket will be removed, and the lower threshold for the 45% tax bracket will increase from $180,000 to $200,000.
These changes were designed to add more recipients to the Low and Middle Income Tax Offset. With the current economic situation we believe this is as a huge help for taxpayers because they will be able to keep an extra $1080 from their possible refunds and at the same time have more money for spending on things that are essential and important to them.
If you need more information and tips to get the most of your return, please don’t hesitate to contact our reliable team of accountants.