• Federal Budget 2020-2021

Personal Income Tax Cuts

The Government will bring forward the second stage of its Personal Income Tax Plan by two years to 1 July 2020 while retaining the low and middle income tax offset (LMITO) for 2020-21. The Morrison Government’s approach aims to provide immediate relief to individuals and support economic recovery and jobs by boosting consumer spending.

Tax bracket cuts brought forward

The 2019-20 budget saw the Coalition build further on their Personal Income Tax Plan with the announcement of further tax bracket cuts. The measures aim to reduce the 32.5% marginal tax rate to 30% from 1 July 2024 to align the middle income tax bracket for individuals with corporate income tax rates.

Stage two of the Plan, originally proposed to take effect from 1 July 2022, will now apply from 1 July 2020. This stage will see the increase of the top thresholds of both the 19% and 32.5% personal income tax brackets.

The impact of the tax bracket cuts is listed below:

2020-21 onwards

2020-21 onwards

Nil - $18,200

0%

$18,201 - $45,000

19%

$45,001 - $120,000

32.5%

$120,001 - $180,000

37%

$180,001 plus

45%

Low Income Tax Offset (LITO)

In addition, the Government will bring forward the proposed increase to the LITO from $445 to $700. The LITO will be recovered at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and an additional 1.5 cents per dollar from taxable incomes between $45,001 and $66,667.

Retaining the LMITO for the 2020-21 income year

The previously announced removal of LMITO, when stage two of the plan is implemented, has now been removed. As a one-off benefit in the 2021 year you will receive the LMITO as well as the stage two tax cuts.

Private health cover

Under the Government’s proposed changes to Private Health cover, the maximum age of dependants allowed under Private Health insurance policies will increase from 24 years to 31 years, and will remove the age limit of dependants with disabilities.

BDO Comment

BDO welcomes the personal tax cuts which will put additional money into the hands of those who are more likely to spend it. Not bringing forward the substantial tax cuts for higher income earners (who would have a greater propensity to save the cuts) was a sensible move in the economic circumstances..

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