Treasurer Josh Frydenberg has announced that stage 2 tax cuts that were legislated to kick in two years later have now been brought forward and backdated to 1 July 2020.
The cuts will see the top threshold of the 19 per cent income tax bracket increased from $37,000 to $45,000.
The top threshold of the 32.5 per cent personal income tax bracket will also increase from $90,000 to $120,000.
Mr Frydenberg has also announced that the $1,080 low and middle income tax offset (LMITO) will be retained for the current financial year.
The measure is set to impact 11.6 million taxpayers at a cost of $17.8 billion.
The government will not bring forward the third stage of its income tax cuts and it will remain scheduled to begin from 1 July 2024, with 95 per cent of taxpayers to face a marginal tax rate of 30 per cent or less.
“Australians will have more of their own money to spend on what matters to them, generating billions of dollars of economic activity and creating 50,000 new jobs,” Mr Frydenberg said in his budget speech.
“Lower and middle-income earners will this year receive tax relief of up to $2,745 for singles, and up to $5,490 for dual-income families compared with 2017–18.
“As a proportion of tax payable compared with 2017–18, the greatest benefits will flow to those on lower incomes, with those earning $40,000 paying 21 per cent less tax, and those on $80,000 paying around 11 per cent less tax this year.”
Labor had previously indicated that it would wave through plans to bring forward the stage 2 tax cuts, noting that it had previously called for such a move.
It remains to be seen how the government will deliver the backdated tax cuts to individuals who have been paying a higher tax rate on the current tax scale for the first four months of the fiscal year.
“It would be really interesting to see how quickly Parliament votes on the personal tax cuts and how quickly the matter will be dealt with by the Senate, because once the ATO has a clear indication that the tax cuts are going to be law, then they will have to swing into action very quickly and start telling businesses and individuals how that personal tax cut can be reflected in their wallets,” Chartered Accountants Australia and New Zealand tax leader Michael Croker said.
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.