Federal Government has brought forward the planned 2022 tax cuts to help stimulate the economy
Seen as a controversial move and sitting at $17.8 Billion over the original estimate, a fast tracked and enhanced version of the planned tax cuts in Australia is here.
If you earn over $37,001 a year, which is 11 million Australians tax payers, you can expect a little boost in your bank account each week, effective immediately.
The government’s plan is to simplify the tax system, boost GDP and create jobs to boost an ailing economy due to Covid-19. However, many believe it to be benefitting high earners and the money would be better spent in other areas.
- Has brought tax relief to low and middle-income earners for the past 2 years
- Originally planned for 2022, brought forward to help protect hard working Aussies from facing higher marginal tax rates through bracket creep.
- Plus a one-off additional benefit from the low and middle income tax offset in 2020–21.
- To ensure Australians pay less tax over their ‘working lives’. Intended to ‘simplify and flatten the personal income tax system’.
What will Stage 2 of the personal income tax plan change, in real terms?
The tax relief plan will:
- increase the top threshold of the 19% tax bracket from $37,000 to $45,000
- increase the top threshold of the 32.5% tax bracket from $90,000 to $120,000.
- increase the low income tax offset from $445 to $700
- retain the middle income tax offset for tax payers with taxable income up to $126,000 per annum for 2020-21 financial year.
So, what does that mean for your actual pocket?
The amount of tax offset you receive depends on your income, so:
- If you earn between $21,886 and $45,000 you’ll receive a tax cut of up to $1080 in your taxable income.
- Between $45,001 and $90,000 you’ll receive a tax cut of $1080 in your taxable income.
- Between $90,001 and $120,000 you’ll receive a tax cut of up to $2430 in your taxable income.
- Above $120,000 you’ll receive a tax cut of $2430 in your taxable income.
Note: A tax cut (or tax offset) is a cut in your taxable income, not a lump sum paid back to you as a tax refund.
Backdating the tax cuts
The effect of these tax cuts is immediate, so alongside the additional tax offset amount eligible tax payers see in their pay, there will also be a ‘catch up’ payment alongside it to make sure a year’s worth of tax cuts a paid in just 8 months!
If you earn $80,000 a year, you’re entitled to a tax offset of $1080, which means you’ll receive an extra $20 in you pay each week. On top of this, you’ll receive a $31 per week ‘catch up’ payment.
New Tax Rates
The 32.5% and 37% tax rates are to be scrapped in the 2024-2025 tax year (Stage 3). Incomes between $45,001 and $200,00 will all fall within a new, 30% tax rate.
2019-2020 = $0 – $18,200
2020-2021 = $0 – $18,200
2024-2025 = $0 – $18,200
2019-2020 = $18,201 – $37,000
2020-2021 = $18,201 – $45,000
2024-2025 = $18,201 – $45,000
2019-2020 = N/A
2020-2021 = N/A
2024-2025 = $45,001 – $200,000
*New 30% tax rate starts in 2024, replacing 32.5% and 37%
2019-2020 = $37,001 – $90,000
2020-2021 = $45,001 – $120,000
2024-2025 = *N/A
2019-2020 = $90,000 – $180,000
2020-2021 = $120,000 – $180,000
2024-2025 = *N/A
2019-2020 = $180,001 and above
2020-2021 = $180,001 and above
2024-2025 = $200,001 and above
What does the government’s tax plan do for businesses?
When it came to businesses, this budget was all about stimulating the economy, with focus on recovery, jobs and investment incentives.
Below is a short summary of the main incentives for small to medium sized businesses
- Expansion of Asset Write Off
(6 October 2020 – 30 June 2022) Businesses with aggregated turnover of up to $5 billion per annum can deduct the full cost of depreciable assets in that same year. In addition, improvement costs to existing depreciable assets are also fully deductible. (Assets must be eligible.)
- Loss carry-back
Companies with an aggregated turnover below $5 billion per annum can offset tax losses against previous profits where tax has already been paid. This is to generate a tax refund. Companies (subject to eligibility) are able to ‘carry back’ losses from 2019-20, 2020-21 and/or 2021-22 to offset taxed profits in 2018-19 or later income years.
- Business entity turnover threshold increased
By raising the aggregated turnover threshold from $10 million to $50 million per annum, access will be expanded for various small business tax concessions for small and medium businesses.
- JobMaker Hiring Credit
To assist eligible businesses to hire staff, employers will receive $200 per week from the government when hiring eligible employees between the ages of 16 and 29 years. When hiring an eligible employee between 30 and 35 years old, employers will receive $100 per week.
- Fringe Benefits Tax
A Fringe Benefits Tax exemption is to be provided for employer-provided training and education for employees who are re-deployed to different areas of the business and for those facing redundancy.
- Research and Development The government is scrapping the $4M cap on Research and Development Tax Incentive refunds. The tiered approach is also being removed, for companies below $20M aggregated turnover. This is replaced with a refundable tax offset of 18.5 percentage points above the company’s tax rate. The tiers remain for +$20M companies but are reduced to just 2.