The Federal Government’s tax cuts for millions of Australians have passed through parliament, just days after being announced in the 2020 Federal Budget.
Providing nearly $50 million in tax relief for individuals and businesses, the fast-tracked tax cuts are the result of the Government bringing forward Stage 2 of its Personal Income Tax Plan.
The Australian Taxation Office (ATO) took less than a week to publish its new tax withholding schedules, so that employees could benefit from the cuts as soon as possible.
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In the Budget, the Government provided some examples of the tax savings individuals will receive. For example, those earning $48,000 to $90,000 will gain an extra $1,080 in 2020-21 from a one-off extension of the low and middle-income tax offset. Those earning more than $120,000 will see the biggest benefit, with a permanent cut of $2,430 in 2020-21 and beyond.
In addition, businesses can look forward to the ability to claw back tax already paid against losses, up to June 2022. They can also to deduct the full cost of capital assets purchased after Budget night and first used or installed by 30 June 2022.
Implementing the tax cuts – a challenge for payroll teams
Now it’s over to Australian employers to make the changes necessary for the tax cuts to be reflected in employees’ take-home pay. They have until 16 November to implement updates to the tax tables and make the necessary adjustments to their payroll processes and systems.
This will pose a challenge for many businesses, depending on their payroll provider’s ability to quickly respond. However, the ATO have acknowledged this difficulty, stating:
“Some employees may notice the tax cuts reflected in their take-home pay within a few days or weeks, while for others it may be longer. Any withholding on the old scales will be taken into account in the employee’s tax return.”
The ATO have provided clarity on the impacted tables, which you can view here.
On the updated withholding tables, the ATO has said:
“The adjustments to the withholding schedules are designed to ensure that taxpayers have the correct amount of tax withheld from their pay going forward.”
“It is not possible for the ATO to determine the extent of ‘over-withholding’ that may have occurred for each and every taxpayer as this is highly dependent on individual circumstances and will be different for everyone.”
The best advice is to work closely with your payroll provider to ensure you are ready for the changes. For example, Sage MicrOpay will provide an update to the tax tables, enabling our clients to easily implement these changes.
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