Assistant Treasurer Michael Sukkar has announced that the government will now move to legislate the suspension of indexation of tax instalments, which will affect an estimated 2.2 million taxpayers paying PAYG income tax instalments, and around 81,000 taxpayers paying GST instalments in 2020–21.
Historical gross domestic product (GDP) outcomes are normally used to index a range of instalment amounts annually to reflect anticipated income growth.
CPA Australia tax policy adviser Elinor Kasapidis said the suspension would provide welcome relief to taxpayers, noting that the most recent indexation amount was 5 per cent.
“The government’s suspension of instalment indexation for 2020–21 will assist small businesses, sole traders and recipients of business and investment income,” Ms Kasapidis said.
“We expect that from September this year, the ATO-calculated quarterly instalment amounts will be 25 per cent of the most recent annual tax or GST liability. For many, this will be based on the amount on their 2018–19 return until they lodge their 2019–20 tax return.
“Taxpayers should be cautious, however, that the suspension may result in underpayment of instalments, leaving them with a larger tax liability when they lodge their 2020–21 tax return.”
Likewise, the IPA’s Tony Greco believes the concession is timely given the importance of cash flow in the current environment.
“The growth factor seems very unlikely given what we’re experiencing, so it's highly appropriate what they’ve done and it’s timely.”
The government’s announcement comes as the ATO allows taxpayers to vary their PAYG instalments, including varying to zero, without penalties, in response to COVID-19.
“In addition to suspending indexation, taxpayers can still vary their instalment amounts if they believe they will pay too much tax for the year,” Mr Sukkar said.
“Taxpayers who pay instalments based on their current income are not subject to indexation because their instalments already adjust to changes in income.
“While these taxpayers are not affected by the suspension of indexation, they have the same right to vary their instalments.”
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.