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Why your tax return could be better than usual this year
If there was ever a year when it was worth doing your taxes on time, it’s this one.
Why your tax return could be better than usual this year
If there was ever a year when it was worth doing your taxes on time, it’s this one.
For those who need an extra reason to submit their tax return before the October deadline, director of tax communications at H&R Block Mark Chapman has four words of encouragement: Stage 2 tax cuts.
Mr Chapman said that these tax cuts, introduced in October by last year’s federal budget, mean that those who get their taxes in on time should expect a “bumper” return.
“That’s because of the low and middle income tax offset and also the change in tax thresholds from 1 July 2020,” he said.
Mr Chapman said that an individual on an income of around $80,000 should expect to come away with a tax balance that’s about $1,500 better than it would be otherwise, regardless of whether it’s a return or a reduction in the amount of tax payable.
Of that $1,500, Mr Chapman explained that around $1,080 was due to the new low and middle income tax offset. The way this offset works is relatively simple, but also convoluted.
If your income is less than $126,000, you’ll get at least some or all of the offset. For those who earn less than $37,000, the offset caps out at $255. If you earn between $37,000 and $48,000, the offset will increase up to a maximum of $1,080.
Those with annual incomes of between $48,000 and $90,000 will receive the full offset. However, those who earn more than $90,000 will see the offset gradually fade out.
If you earn more than $126,000 a year, you won’t come away with any offset on your tax payable for the year.
Importantly, “you MUST lodge your tax return in order to get the offset”, Mr Chapman said.
This offset isn’t the only reason to raise your expectations when it comes to your tax return this year.
Mr Chapman noted that the other half of the Stage 2 tax cuts “arises from the change in tax thresholds”.
Originally due to come into effect in the 2023–2024 financial year, these changes see the 19 per cent tax threshold shift from $37,000 to $45,000.
Meanwhile, the previous $37,001–$90,000 tax bracket is set to be replaced with a new $45,001–$120,000 one.
Australians who fall into this category when it comes to annual income will be subject to a 32.5 per cent tax rate.
Finally, those who earn more than $120,001 will face a higher 37 per cent tax bracket.
As a result of these shifts in Australia’s various tax brackets, those who earned close to the upper or lower limits of a given bracket may now have changed brackets.
Since these new tax rates only apply to income earned after the 1st of December 2020 onwards, Mr Chapman estimated that an Australian on a salary of around $80,000 should expect around $400 in tax back.
While taxes are a subject that gets people talking about how much they’re, the combined impact of these two measures seems primed to ensure that 2021 is a year when the opposite is the case.
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