More Than 11 Million Australians to pocket up to $2,430 from budget tax cuts

To stimulate a struggling Australian economy, the Federal Government announced that Stage 2 of their 3-Stage tax cuts originally penned to commence July 2022 have been brought forward, and backdated, to July 1 this year. This will increase the weekly take home pay packet for roughly 11 million Australians.

The tax cut changes will see:

·        An increase in the 19 per cent tax bracket from $37,000 to $45,000,

·        An increase in the 32.5 per cent bracket from $90,000 to $120,000,

·        An increase in the low-income tax offset from $445 to $700.

Ashley Debenham, Senior Manager at Etax.com.au says “This round of tax cuts essentially means that anyone earning above $37,001 will see a a change to their tax rate and more money in their pocket each week.”

How extra money will Australians get from the tax cuts?

·          ·       $21,886 - $45,000: Up to $1080

·          ·       $45,001 - $90,000: $1080

·          ·       $90,001 and above: Up to $2,430

The Tax Cuts Will Be Backdated to 01 July

The cuts which are anticipated to be in place by the end of October, will be backdated to 01 July 2020. This sees the condensing of a year worth of tax cuts into approximately 8 months.

Mr Debenham explains what this means for taxpayers.

“A worker with an income of $80,000 won’t just receive an extra $20 per week, they’ll receive about $31 a week as the government “catches up” on payments for the weeks that have already passed since 01 July.”

“Then, from 01 July 2021 payments would adjust back to the $20 a week figure.”

Come tax time, the introduction of the tax cuts should not have any negative implications on how Australians do their tax return.

“All tax cut changes should be implemented by employer’s payroll software, including the low-income tax offset and the low & middle income tax offset. The only changes Australian taxpayers can expect this year is an increase in their take home pay each week” Mr Debenham says.

2021-22 tax changes

The low to middle income tax offset (LMITO) was scheduled to end with the introduction of the stage 2 tax cuts however for now the Federal Government has decided to keep the LMITO for the 2020-21 tax year.

Come 2021-22 the LMITO will be scratched, meaning only the newly introduced tax cuts will stand.

Mr Debenham explains, “Looking forward to 2021-22 it’s important for middle-income earners to understand that with the removal of the LMITO they will actually end up paying more tax in 2021-22 financial year than they will this tax year.”

“They shouldn’t be surprised if their 2021-22 tax refund isn’t as high as expected”, he says.  

What about stage 3 tax cuts?

Stage three tax cuts due in 2024 where the entire 37% tax bracket is removed altogether are not included in this announcement and remain scheduled for the 2024 financial year.

See below for tax rate comparison tables:

– Ends –