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  • JobMaker Plan - bringing forward the Personal Income Tax Plan

    The Government has brought forward stage 2 of its Personal Income Tax Plan for the 2020–21 income year. The low and middle income tax offset will continue to be available for the 2020–21 income year but will not apply for the 2021–22 income year and later years.

    Threshold changes

    The measure:

    • increases the low income tax offset (LITO) from $445 to $700 and adjusts the phase out rules
    • increases the top threshold of the 19% personal income tax bracket from $37,000 to $45,000, and
    • increases the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.

    These changes result in the following tax rates for the 2020–21 income year for individuals who are Australian residents.

    Resident tax rates for 2020–21

    Taxable income

    Tax on this income

    0 to $18,200

    Nil

    $18,201 to $45,000

    19cents for each $1 over $18,200

    $45,001 to $120,000

    $5,092 plus 32.5cents for each $1 over $45,000

    $120,001 to $180,000

    $29,467 plus 37cents for each $1 over $120,000

    $180,001 and over

    $51,667 plus 45cents for each $1 over $180,000

    Note: Changes also apply for the thresholds of foreign resident individual taxpayers and working holiday makers. The new tax rates are as shown in the tables below.

    Foreign resident tax rates for 2020–21

    Taxable income

    Tax on this income

    $0 – $120,000

    32.5cents for each $1

    $120,001 – $180,000

    $39,000 plus 37 cents for each $1 over $120,000

    $180,001 and over

    $61,200 plus 45 cents for each $1 over $180,000

    Working holiday maker tax rates 2020–21

    Taxable income

    Tax on this income

     0 to $45,000

    15%

     $45,001 to $120,000

    $6,750 plus 32.5 cents for each $1 over $45,000

     $120,001 to $180,000

    $31,125 plus 37 cents for each $1 over $120,000

     $180,001 and over

    $53,325 plus 45 cents for each $1 over $180,000

    Low income tax offset

    The low income tax offset (LITO) has changed from a maximum amount of $455 to $700 per annum for the 2020–21 income year and future years. The phase out rules for LITO have also changed and are set out below:

    Low income tax offset phase out rules

    Taxable income

    Tax on this income

    $37,500 or less

    $700

    Between $37,501 and $45,000

    $700 minus 5 cents for every dollar above $37,500

    Between $45,001 and $66,667

    $325 minus 1.5 cents for every dollar above $45,000

    As a non-refundable offset, any unused low income tax offset cannot be refunded. The low income tax offset will directly reduce the amount of tax payable but does not reduce the Medicare levy. If not all the offset is used to reduce the tax payable, there is no refund of any unused portion.

    Low and middle income tax offset

    Under the previous legislation, the low and middle income tax offset (LMITO) was to be repealed when the relevant threshold changes came into effect and the LITO was increased.

    LMITO will continue to be available for the 2020–21 income year then removed for the 2021–22 income year and later years.

    There are no changes to the amount of LMITO or the eligibility thresholds and as such LMITO is applied as outlined in the following table:

    Low and middle income tax offset

    Taxable income

    Offset

    $37,000 or less

    $255

    Between $37,001 and $48,000

    $255 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,080

    Between $48,001 and $90,000

    $1,080

    Between $90,001 and $126,000

    $1,080 minus 3 cents for every dollar of the amount above $90,000

    As a non-refundable offset, any unused low and middle income tax offset cannot be refunded. The low and middle income tax offset will directly reduce the amount of tax payable but does not reduce the Medicare levy. If not all of the offset is not used to reduce the tax payable, there is no refund of any unused portion.

    2020–21 administrative treatment

    PAYG Withholding

    Updated tax withholding schedules are now available at ato.gov.au/taxtables.

    These schedules enable employers to withhold the correct amount of tax which willallow the tax cuts to be reflected in people’s take home pay.

    We are working closely with providers of payroll software and employers to ensure that the reduced withholding associated with the threshold changes and the increase of LITO is reflected in software as soon as practicable.

    Any withholding on the old scales will be taken into account in the employee’s tax return.

    PAYG instalments

    The changes to thresholds have not been included when calculating PAYG Instalments shown on the September quarter Activity Statements. The changes will be reflected in the December Activity statements. In most cases this will result in a wash-up of any over payments that occurred for earlier periods.

    Variations to your PAYG instalments

    In line with our current position, if you chose to vary your PAYG instalments for the 2020–21 income year to reflect the tax cuts we will not apply penalties or charge interest for excessive variations if you have made your best attempt to estimate your end of year tax liability. General interest charges may apply to outstanding PAYG instalment balances. We encourage you to review your tax position regularly throughout the year and vary your PAYG instalments as your situation changes.

    Lodgment of 2020–21 Returns

    System updates to reflect the proposed changes will be ready for Tax Time 2020–21.

    Individual income tax returns for the 2020-21 income year that must be lodged early, e.g. date of death returns or taxpayers permanently leaving Australia, will be processed using the proposed new thresholds and the changes to LITO.

    Those early 2020–21 tax returns processed prior to the changes will be reviewed and if required automatically amended. You do not need to do anything different when lodging your tax return.

    2024–25 Income year and later years

    The date of effect of the final stage of the personal income tax plan remains unchanged.

    From the 2024–25 income year the 32.5% marginal tax rate will reduce to 30%. This means – for a resident individual the rate of tax on the amount of their taxable income that:

    • exceeds $18,200 but is not more than $45,000 will be 19%
    • exceeds $45,000 but is not more than $200,000 will be 30%
    • exceeds $200,000 will be 45%.

    Legislation and supporting material

    More information

      Last modified: 15 Oct 2020QC 63856