Personal tax rate cuts >
The Government proposes to ‘fast track’ ‘Stage 2’ of the personal income tax cuts announced as part of the broader ‘Personal Income Tax Plan’ which were set to apply from 1 July 2022.
From 1 July 2020, the top threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000. The top threshold of the 32.5% personal income tax bracket will increase from $90,000 to $120,000.
Outlined below is the estimated tax saving for an individual Australian Resident between $40,000 – $120,000 of taxable income as a result of the proposed changes to income tax rates, LMITO and LITO:
|Taxable income||Total tax saving compared to financial year 2020|
*Includes basic tax scales, low income tax offset, low and middle income tax offset, medicare levy
‘Stage 3’ of the tax cuts remains unchanged and is to apply from 1 July 2024. The measures will result in the abolition of the 32.5% and 37% personal income tax brackets, with the introduction of the 30% income tax bracket covering taxable incomes between $45,001 – $200,000. In addition, the top personal income tax threshold is to increase from $180,000 to $200,000.
The proposed personal income tax rates up to the year 2024/25 are outlined below:
|Rate||Thresholds 2020/21 to 2023/24||Thresholds 2024/25|
|Nil||Up to $18,200||Up to $18,200|
|19%||$18,201 – $45,000||$18,201 – $45,000|
|30%||–||$45,001 – $200,000|
|32.5%||$45,001 – $120,000||–|
|37%||$120,001 – $180,000||–|
|45%||Above $180,000||Above $200,000|
95 per cent of taxpayers will have a marginal tax rate of 30 per cent or less in 2024‑25.
Low and middle income tax offset
The Low and Middle Income Tax Offset (LMITO) will be retained for the 2020-21 financial year, which provides further tax relief for low and middle income earners.
Individuals earning between $48,000 and $90,000 will continue to receive the maximum $1,080 offset. For taxable income of $90,000 to $126,000, the offset phases out at a rate of 3 cents per dollar. Consistent with the 2019-20 income year, the LMITO will be received on assessment after individuals lodge their tax returns for the 2020-21 year.
|Up to $37,000||$255|
|$37,001 to $48,000||$255 plus 7.5 cents for each dollar over $37,000|
|$48,001 to $90,000||$1,080|
|$90,001 to $126,000||$1,080 less 3 cents for each dollar over $90,000|
Low Income Tax Offset
From 1 July 2020, the Federal Government will increase the Low Income Tax Offset (LITO) from $445 to $700 for individuals earning less than $37,500.
The LITO will decrease at a rate of 5 cents for every dollar for taxable incomes between $37,500 to $45,000. The LITO will then decrease at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
CGT exemption for ‘Granny Flats’ >
From 1 July 2021 (subject to enactment of legislation), a Capital Gains Tax (CGT) exemption will be provided for ‘granny flat’ arrangements, provided there is a formal written agreement in place.
Under the proposed measure, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement, which provides accommodation for older Australians or people with disabilities.
Tax deduction for reskilling/retraining >
In addition to the FBT exemption for businesses, further consultations will be made by the Federal Government regarding changes to the tax deduction rules for training costs incurred by an individual. Under the existing rules, for an individual to deduct training or education costs, the training must be related to their current employment.
The current system acts as a disincentive for Australians to retrain and reskill to support their future employment and career needs. The Government will consult on potential changes to the current arrangements to determine whether deductions should also be targeted to future employment and skills.