The October 2020 Budget was being built up by many as a budget for the ages. In reality there was good news for individual taxpayers who will receive tax cuts and for welfare recipients who will receive two additional payment of $250 (one in December 2020 and one in March 2021). Apart from these measures there was not much in the budget for individuals. We have summarised the key points from the budget as they relate to individuals below.
Personal Tax Cuts
In the previous Budget the Federal Government promised to deliver individual tax cuts progressively over a number of years. In this year’s Budget the Government has proposed to bring forward those Stage 2 personal income tax cuts from 2022-23 to 2020-21. The new proposed individual tax brackets will be as follows and take effect from 1 July 2020:
Tax Bracket
$0 – $18,200
$18,201 – $45,000
$45,001 – $120,000
$120,001 – $180,000
$180,001 +
Rate of Tax Payable
0%
19%
32.5%
37%
45%
In addition, Stage 3 of the personal income tax cuts will now take effect fro, 1 July 2024 and will be as follows:
Tax Bracket
$0 – $18,200
$18,201 – $45,000
$45,001 – $200,000
$200,001 +
Rate of Tax Payable
0%
19%
30%
45%
Low Income Tax Offset
For a number of years the Low Income Tax Offset (LITO) has been set at a maximum of $445. If your taxable income was $37,000 or less then you were entitled to the full LITO of $445. The LITO reduced by $0.015 for every $1.00 of taxable income you earned over $37,000. The LITO cuts out fully if your taxable income was $66,667 or above.
The Budget proposes to increase the LITO from $445 to $700. The phase out rates will alter such that the LITO will be nil for anyone earning more than $66,667. That is, if your income is $37,000 or below you will receive the full new LITO of $700. If your income is between $37,001 and $45,000 the LITO will reduce by an amount of $0.05 for every dollar of income above $37,000. Beyond $45,000 of taxable income the LITO will continue to be phased out at the rate of $0.015 for every dollar above $45,000. There is no entitlement to receive the LITO if your taxable income is greater than $66,667.
Low & Middle Income Tax Offset (LMITO)
The LMITO was introduced in the 2019 tax year and provided low and middle income earners with an additional tax offset ranging from a minimum of $255 if your taxable income was below $37,000 to a maximum tax offset of $1080 if your taxable income was between $48,001 and $90,000. The LMITO reduces by 0.03 for every $1.00 of taxable income that you earned over $90,000 and phased out to $Nil if your taxable income was above $126,000.
The Budget confirmed that the LMITO will remain in place for the 2021 tax year but 2021 will be its final year. The LMITO amounts will remain the same as 2020.
Taxable Income
$37,000 or less
Between $37,001 and $48,000
$Between $48,001 and $90,000
$Between $90,001 and $126,000
LMITO Available
$225
$225 + $0.075 per $1.00 above $37,000 up to a maximum of $1080
$1080
$1080 less $0.03 for every $1.00 above $90,000
Aged Pensioners & Other Welfare Recipient
Aged pensioners will receive two $250 payment from the Government. The first of these $250 payments will be paid in December 2020 and the second payment will be made in March 2021.
These two $250 payments will also be paid to those on disability support pensions, carer payments, recipients of Family Tax Benefit, carer allowance and certain Veterans’ affairs payments. The payments will also be made to holders of pensioner concession cards, Commonwealth Seniors Health Care cards and Veterans’ concession cards.
If you would like to discuss how the 2020 – 2021 Federal Budget may impact you please contact our office.
