JobMaker Plan – bringing forward the personal income tax plan

On 11 May 2021, as part of the 2021–22 federal Budget, the Australian Government announced it will extend the low and middle income tax offset (LMITO) for the 2021–22 income year.

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
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	19 cents for each $1 over $18,200
$45,001 to $120,000	$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 to $180,000	$29,467 plus 37 cents for each $1 over $120,000
$180,001 and over	$51,667 plus 45 cents for each $1 over $180,000

Note: Changes also apply to thresholds for 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 to $120,000	32.5 cents for each $1
$120,001 to $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 LITO maximum amount has increased from $455 to $700 per year 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	Offset
$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. This in turn will allow 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:

the reduced withholding associated with the threshold changes
the increase of LITO is reflected in software as soon as practicable.

Any withholding on the old scales will be accounted for 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

We will not apply penalties or charge interest for excessive variations if:

you chose to vary your PAYG instalments for the 2020–21 income year to reflect the tax cuts
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.

Lodging 2020–21 returns

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

Some individual income tax returns must be lodged early. For example date of death returns or taxpayers permanently leaving Australia. For the 2020–21 income year those early returns will be processed using the proposed new thresholds and the changes to LITO.

If those early 2020–21 tax returns were processed before changes were implemented, they will be reviewed and if required automatically amended. You do not need to do anything different when lodging your tax return.

Tax rates from 2024–25 income year

The effective date 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 tax rate on their taxable income will be as follows.

2024–25 income year
Taxable income	Tax rate on this income
$18,200 to $45,000	19%
$45,001 to $200,000	30%
$200,001 and over	45%

See also:

Last modified: 27 Sep 2021QC 63856