Key insights

  • Bringing forward personal income tax cuts should result in an immediate cash increase for most employees.
  • Low income earners will receive additional support through the increase to the Low Income Tax Offset and maintaining the current Low and Middle Income Tax Offset.
  • The government is removing barriers to help employees re-skill and take on new roles.

Personal income tax cuts brought forward

The government has brought forward the commencement date for previously legislated ‘Stage Two’ personal income tax cuts from 1 July 2022 to 1 July 2020. The cuts increase the upper threshold of the 19 per cent tax bracket from $37,000 to $45,000, and the upper threshold of the 32.5 per cent tax bracket from $90,000 to $120,000. The retroactive start date will mean an immediate cash increase for most employees.

The commencement date for the ‘Stage Three’ personal income tax cuts (which predominantly impacts middle-to-high income earners) has not been changed in this Budget and remains as 1 July2024. The proposed income tax rates are:

Relief for low income earners

The Budget provides further relief for low income earners through an increase to the Low Income Tax Offset from $445 to $700. This relief applies from 1 July 2020 and will be available through the 2020-21 personal income tax returns. The current Low and Middle Income Tax O􀃠set of up to $1,080 will remain in place for 2020-21. This Offset was originally scheduled to cease when the ‘Stage Two’ tax cuts came into effect.

Costs for retraining employees

Currently, training provided to employees that is not sufficiently connected to their current role is subject to fringe benefits tax (FBT) for employers. This budget seeks to support redeployment of individuals into new roles by providing a specific FBT exemption for all retraining costs provided by employers to redundant, or soon to be redundant, employees. The Government will also undertake consultation to consider allowing a personal income tax deduction where the costs of retraining are funded directly by the individual.

Removal of Capital Gains Tax for granny flats

A specific exemption from tax on capital gains will be introduced for formal granny flat arrangements with older Australians or those with a disability. The measure is intended to remove tax impediments for families creating formal arrangements and will likely come into effect from 1 July 2021.

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