This month’s column will focus on the personal income tax changes and how they will impact on the tax payable on your taxable income and when you can expect to see these tax benefits flowing into your bank account.
Changes to Tax Rate Ranges excluding the Medicare Levy
For the years from 1st July 2020 – 2024 there is no change to the tax rates and no changes to the zero rate range 0 – $18,200 and the 45% range of $180,000 plus.
The good news lays in the increased range the 19% rate applies to which increases from the range of $18,301 – $37,000 to $18,301 – $45,000 resulting in up to an additional $8,000 of taxable income now taxed at 19% instead of 32.5%. This will deliver up to a maximum reduction in tax of $1,080 if your taxable income is $45,000 or $41.54 per fortnight.
There is also further good news for you if your taxable income falls within the range of $90,000 to $120,000 as the 32.5% rate which applied to the range of $37,001 – $90,000 has been lifted to apply to the range from $45,001 – $120.000. Instead of income falling in the range between $90,000 and $120,000 being taxed at 37% it will now be taxed at 32.5% thus delivering a maximum reduction in tax over the $30,000 range from $90,000 to $120,000 of $1,350 i.e. (.37-.325) x 30000. So if your taxable income is $120,000 the total tax saving will be (1,080 + 1,350) = $2,430 or $93.46 per fortnight.
Changes to the Low Income Tax Offset (LITO)
The Government also announced that it will bring forward the changes that were proposed for the LITO from 1/7/2022 to now apply from 1/7/2020 as follows:
- The maximum LITO will be increased from $445 to $700.
- The increased (maximum) LITO will be reduced at a rate of 5 cents per dollar for taxable incomes between $37,500 and $45,000.
- The LITO will be reduced at a rate of 1.5cents per dollar for taxable incomes between $45,000 and $66,667.
These changes will add an additional tax saving of ($700 – $445) = $255 for a taxpayer on $37,500 but will make no difference at a taxable income of $45,000 where the LITO amount is unchanged at $325 as the higher maximum amount of $700 is offset by the higher excess reduction rate of 5 cents per $ compared with the previous lower reduction rate of 1.5 cents per $.
For taxable incomes between $45,000 and $66,666 the decline from $325 to nil has not changed.
The Low And Middle Income Tax Offset (LAMITO)
The Government also announced that the current (LAMITO) would continue to apply for the 2021 income year which is available in addition to the LITO for eligible taxpayers.
The LAMITO is applied to taxable income as follows:
- Between 0 – $37,000 the offset is $255.
- Between $37,001 and $48,000 the offset is $255 plus 7.5% of the amount of taxable income exceeding $37,000.
- Between $48,001 and $90,000 the offset is fixed at $1080
- Between $90,001 and $126,000 the offset is $1080 less 3% of the amount of taxable income that exceeds $90,000.
When can I receive the benefits from these tax savings?
The personal tax benefits explained above were unveiled by the Treasurer Josh Frydenberg in his budget delivered on 6th October and were quickly passed by Parliament three days later.
Despite the tax cuts being backdated to 1st July this year, the Tax Office has confirmed that it will not adjust tax withholding schedules to account for any over-withheld amounts that individuals may have accrued since the start of the financial year. Instead any over taxed amounts will be reflected in your tax assessment when your 2021 income tax return is assessed. So much for stimulating the economy with your tax cuts.
Your employer will need to make adjustments in their payroll systems in order for the tax cuts to be reflected in your take-home pay or wait for their payroll or accounting software to be updated to accommodate the changes which may take some days or weeks depending on the software provider. You can therefore expect approximately one quarter to one third of your benefit to be accrued or delayed until after June 2021.
For those of you who are non-salary and wage earners you can immediately take advantage of the tax cuts by varying down your September quarter PAYG tax instalment in your September quarter BAS.
Finally you have a choice to make. With the extra funds in hand from the tax savings are you going to spend it all on celebrating the lifting of Stage 4 restrictions or be sensible and pay out you credit cards or increase the repayments on the mortgage on your home?
Disclaimer:
The content of this article is not intended to be relied upon as professional advice and should not be used as such. Some of the calculations illustrated in this article can be complex so if you are preparing your own tax return, let your tax software, the tax office or your tax agent calculate your tax refund.
Brian Spurrell FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
P O Box 143 Warrandyte 3113. Ph: 0412 011 946
Web: www.ptasaccountants .com.au