What is the proposed measure?
Reductions in individual tax rate thresholds will apply for the 2020-21 income year.
From 1 July 2020:
• The top threshold of the 19% personal income tax bracket will be increased from $37,000 to $45,000.
• The top threshold of the 32.5% personal income tax bracket will be increased from $90,000 to $120,000.
This brings forward changes previously legislated to commence from the 2022-23 income year.
Further changes legislated to commence in the 2024-25 income year remain unchanged.
Individual tax rates for residents
2020-21; 2021-22; 2022-23; 2023-24 tax thresholds
Tax on this income
$0 – $18,200
$18,201 – $45,000
19c for each $1 over $18,200
$45,001 – $120,000
$5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000
$29,467 plus 37c for each $1 over $120,000
$51,667 plus 45c for each $1 over $180,000
2024-25 and later years tax thresholds
$45,001 – $200,000
$5,092 plus 30c for each $1 over $45,000
$51,592 plus 45c for each $1 over $200,000
Individual tax rates for non-residents
$0 – $120,000
32.5c for each $1
$39,000 plus 37c for each $1 over $120,000
$61,200 plus 45c for each $1 over $180,000
$0 – $200,000
$65,000 plus 45c for each $1 over $200,000
• The Low and Middle Income Tax Offset (LMITO) will be retained for the 2020-21 income year.
• The Low Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Source: Budget Paper No 2, page 18
Tax offsets for individuals
Low and Middle Income Tax Offset
Up to $37,000
$37,000 – $48,000
$255 plus 7.5c for each $1 over $37,000
$48,001 – $90,000
$90,001 – $126,000
$1,080 less 3c for each $1 over $90,000
Low Income Tax Offset
Up to $37,500
$37,501 – $45,000
$700 – (5% of excess over $37,500)
$45,001 – $66,667
$325 – (1.5% of excess over $45,000)
Who will it affect?
All individuals taxpayer
When will it apply?
From 1 July 2020
The changes will provide taxpayers at all income levels with potential tax savings.
Saving before offsets
* up from $710
** the above table does not take into account the 2% Medicare levy
A targeted capital gains tax (CGT) exemption for granny flat arrangements will be provided where there is a formal written agreement. The exemption will apply to arrangements with older Australians or those with a disability.
The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
This measure arises from concerns that the current CGT rules impede the creation of formal and legally enforceable granny flat arrangements. It’s aimed at removing these CGT impediments and reducing the risk of abuse to vulnerable older Australians.
Note: This measure is consistent with the recommendations in the Board of Taxation’s Review of Granny Flat Arrangements, the Government’s National Plan to Respond to the Abuse of Older Australians announced on 19 March 2019, and the 2017 Australian Law Reform Commission’s Report: Elder Abuse — A National Legal Response.
Source: Budget Paper No 2, p24
Under the proposed measures, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement that provides accommodation for an older Australian or a person with disabilities.
However, the proposed measures 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.
Source: Treasurer Joint media release with the Minister for Housing and Assistant Treasurer, 5 October 2020
The proposed measures follow the Board of Taxation’s “Review of Granny Flat Arrangements” (November 2019) and the Government’s acceptance of its recommendations.
Accordingly, the proposals will provide a CGT exemption for the home-owner in relation to any capital gains arising in relation to creating “granny flat rights” and/or for the variation, extension or ending of such rights (e.g. under CGT event D1 or CGT event C2).
Presumably, in accordance with the recommendation of the Board of Taxation’s “Review”, a later sale of the home together with the granny flat by the home-owner will also be exempt from CGT (on the basis that the granny flat has been used in conjunction with the main residence for domestic purposes and that it is not a “separate” unit of accommodation).
Note: The Board of Taxation's Review of Granny Flat Arrangements can be found at https://taxboard.gov.au/node/1276
Need more information? Click below to view membership benefits or get in touch to discuss how being a member can help you in your role.