• Individuals - Opposition reply

For the latest federal budget information visit: FEDERAL BUDGET 2021


Personal tax cuts

The Labor Party has matched the Coalition Government’s tax refund and promised extra tax cuts for low-income earners. It will support the low and middle income tax offset proposed in the Coalition's budget, but increase it for low-income and part-time workers.

Under Labor, a person earning below $45,000 dollars a year would receive an offset of $350 in their next tax return, about $100 more than the Coalition ($255).

Labor is opposing the second and third stages of the Government's latest income tax cuts, while backing the tax offset worth up to $1,080 for 10 million workers from 1 July.

The second phase of the Coalition tax cuts was scheduled to begin in 2022 and would lower the tax rate for at least 1.1 million people earning between $90,000 and $120,000. The third stage, commencing in 2025, would see the abolition of a whole tax bracket and a reduction of the marginal rate for most workers to 30%.

Instead Labor is offering 3.6 million low-income earners up to $95 a year more than what the Coalition promised in the Federal Budget. A person on $37,000 will get $350 when they complete their tax return after 1 July under Labor, compared to the $255 being promised by the Government. Someone on $40,000 would get $549 compared to the Government's $480.

On the Labor Party website it says “everyone earning less than $125,000 a year will receive a bigger tax cut under Labor compared to the Liberals. More than four million people will be better off by $398 a year compared to the Liberals”.

Read BDO’s commentary on the Coalition’s proposed changes to offsets, rates and thresholds as announced in the 2019/20 Federal Budget. 

BDO Comment

The Labor Party is proposing to roll back the second and third stages of the Coalition’s Federal Budget tax cuts, and instead favour further tax relief to people with lower taxable incomes.

Top marginal tax rate

The Labor Party intends to increase the top personal tax rate for four years from 45%to 47% (which will mean 49% including the Medicare levy) for those individuals whose taxable income exceeds $180,000. This would also have the effect of returning the FBT rate to 49% and would result in consequential changes to other tax rates linked to the top personal tax rate.

BDO Comment

According to the Labor Party policy documents, the higher income tax rate will fund the revenue shortfall caused by its opposition to having a higher Medicare levy imposed on households earning less than $87,000.

Cap on deductions for tax management expenses

Labor is proposing to cap the amount individuals can deduct for the management of their tax affairs at $3,000 from 1 July 2019. Whilst the cap will affect individuals, trusts and partnerships, a carve-out will be provided for individual small businesses with positive business income and annual turnover up to $2 million. Taxpayers can currently claim expenses relating to preparing and lodging their tax return and activity statements without limit.

BDO Comment

This change has been proposed based on a concern that a small number of high-wealth taxpayers appeared to have reduced their taxable income below the tax-free threshold with such deductions. This policy is an extreme and arbitrary response to deductions claimed (presumably validly claimed) by 48 taxpayers. However, this deduction is also used where taxpayers pay for help in disputes with the ATO. It appears unfair to us that a deduction is so severely limited for those challenging the might of the ATO.