Tax Cuts Now in Play

The Taxation Administration Act Withholding Schedules No 2 2020 were registered on 12 October 2020.  

The PAYG wages withholding schedules have been updated in response to the changes to tax scales that were announced in the recent Federal budget, and contained in Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020, which passed Parliament on 9 October 2020. Three changes were made, backdated to 1 July 2020, which are now reflected in the new withholding schedules:  

  • the top threshold of the 19% personal income tax bracket has increased from $37,000 to $45,000 
  • the top threshold of the 32.5% tax bracket has increased from $90,000 to $120,000 
  • bringing forward the increase in the amount of the low income tax offset to $700 (from $445) to 2020-21 (instead of the 2022-23 income year and later income years) 

The ATO has also been working closely with providers of payroll software and employers to ensure the reduced withholding associated with the threshold changes, and the increase of LITO, is reflected in software as soon as practicable. 

The changes apply to payments made on and from 13 October 2020, with employers required to make sure they are withholding the correct amount from salary or wages paid to employees for any pay runs processed in their system from no later than 16 November onwards. 

While the tax cuts have been backdated to 1 July 2020, the tax table changes do not take into account any over-withheld amounts that individual taxpayers have paid since the start of the financial year. Instead, this over-withheld amount will be factored into an individual’s 2020-21 tax return.