One of the measures that was introduced by the Australian Government as a part of the recent Federal Budget was personal income tax cuts. The personal tax cuts apply to income earned on and from 13 October 2020, which means that these changes are relevant for the income tax year ending 30 June 2021.
Scope of Changes for Resident Taxpayers
The tax rates apply retrospectively from 1 July 2020 as follows:
- the low-income tax offset has increased from $445 to $700;
- the top taxable income threshold for the 19 per cent tax bracket has increased from $37,000 to $45,000; and
- the top taxable income threshold for the 32.5 per cent tax bracket has increased from $90,000 to $120,000.
The new rates are as follows:
Employers must ensure that they are withholding the correct amount of PAYG tax from salary or wages paid to employees for payrolls processed from 16 November 2020 onwards.
Employers must adjust their payroll processes and systems for the tax cuts to be reflected in employee’s take home pay. In addition, any over-withholding that occurred prior to the updates to payroll software or processes will be applied as credits when the employees lodge their income returns for the year ending 30 June 2021.
The Australian Taxation Office (ATO) is working closely with payroll software providers to ensure that the providers’ software is updated by 16 November 2020 to reflect the tax cuts.