In the Budget, the Government announced that it will bring forward to 1 July 2020 the personal tax cuts (Stage 2) that were previously legislated in 2018 to commence from 1 July 2022. The Stage 3 tax changes remain unchanged and commence from 1 July 2024, as previously legislated:
Stage 2 tax rates – was 1 July 2022, now 1 July 2020; and
Stage 3 tax rates – unchanged; to commence on 1 July 2024, as previously legislated.
The Government will bring forward the Stage 2 personal income tax cuts to 1 July 2020 (from 1 July 2022, as previously legislated in 2018). The Treasurer said this will see more than 11 million taxpayers get an immediate tax cut backdated to 1 July 2020.
From 1 July 2020:
the top threshold of the 19% personal income tax bracket will increase from $37,000 to $45,000; and
the top threshold of the 32.5% tax bracket will increase from $90,000 to $120,000.
The new low income tax offset (maximum $700) has also been brought forward to 2020–2021, while the low and middle income tax offset (maximum $1,080) has been retained for 2020–2021.
Mr Frydenberg said more than seven million individuals are expected to receive tax relief of $2,000 or more for the 2020–2021 income year compared with the 2017–2018 tax settings. Low and middle income tax payers will receive relief of up to $2,745 for singles and $5,490 for dual income families.
Stage 3: from 2024–2025
The Stage 3 tax changes remain unchanged and commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time under the Government’s already legislated plan.
Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.
With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Low income offsets: new LITO brought forward and LMITO retained
The Government announced in the Budget that the new low income tax offset (LITO) will be brought forward to start as from the 2020–2021 income year. The new LITO was intended to replace the existing low income and low and middle income tax offsets as from 2022–2023. Although the existing LITO is scrapped, the low and middle income offset (LMITO) will be retained for 2020–2021.
Bringing forward the new LITO is a consequence of bringing forward to 2020–2021 the tax cuts that were scheduled to start in 2022–2023.
The maximum amount of the new LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
The amount of the LMITO is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.
CGT exemption for “granny flats”
The Budget confirms that the Government will put in place a “targeted” CGT exemption for granny flat arrangements.
Under the measure, CGT will not apply to the creation, variation or termination of a granny flat arrangement providing accommodation where there is a formal written agreement in place. The Budget states that it will apply to arrangements that provide accommodation for “older Australians or those with a disability”. There are no further details as to what constitutes “older” or “disability”.
The exemption will only apply to agreements that are entered into because of “family relationships or other personal ties” and will not apply to commercial rental arrangements.
It is intended that the measure commence from 1 July 2021 (ie next financial year), subject to the passage of necessary legislation.
The measure was earlier announced by the Treasurer and Assistant Treasurer on 5 October 2020, the day the Government also publicly released the Board of Taxation’s report on the taxation of granny flat arrangements (the report had been provided to the Government in November 2019). That report recommended the CGT exemption.
First Home Loan Deposit Scheme: additional 10,000 places
The Government will allocate an additional 10,000 places for first home buyers under the existing First Home Loan Deposit Scheme.
Under the existing Scheme, eligible first home buyers can obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5%. The Scheme provides a Government-backed guarantee equals to the difference between the deposit (of at least 5%) and 20% of the purchase price.
Applications can be made as part of the standard home loan application process through participating lenders. The Scheme has already helped almost 20,000 first home buyers.
The Treasurer said eligible first home buyers will also be able to take advantage of the Federal Government’s First Home Super Saver Scheme and HomeBuilder. First home buyers may also be eligible for State and Territory grants and concessions.
The additional 10,000 places under the scheme will be provided from 6 October 2020. The additional guarantees will be available until 30 June 2021.