Budget 2021 tax cuts: How much will you get back?
The government has announced tax cuts of up to $1,080 again this year, but the amount you'll get back depends on how much you earn.
The government has confirmed more tax cuts for working Australians in tonight's federal budget announcements. The tax cut will come in the form of a low to middle income tax offset (LMITO) with the maximum offset being $1,080 for singles (or $2,160 for couples).
This is actually an extension of the LMITO which was in place last year and set to end this year, rather than a completely new tax cut.
How much will I save in tax?
The biggest tax offset is $1,080 which will be given to around 10 million workers earning between $45,000 and $90,000. The table below shows how much you can expect to receive in a tax offset for your salary.
Low to middle income tax cut 2021
|Annual salary||Tax cut|
|Less than $18,200||No tax payable|
|$37,000 or less||$255|
|Up to $90,000||$1,080|
|$126,000+||No tax offset|
If you're earning $90,000 or more, you'll receive a tax offset of $1,080 minus 3 cents for each dollar you earn above $90,000. This means the tax offset will be gradually reduced until you earn $126,000 when no tax offset applies.
It's worth noting that, while high income earners earning above $126,000 won't qualify for this LMITO, they'll still benefit from the government's complete tax cuts plan. This package will see workers earning $120,000+ save over $2,000 in tax per year from 2022.
How do I get this tax offset?
You don't need to do anything special to get your tax offset, it'll be applied to your tax return automatically by the ATO. The ATO will use your total taxable income for the year to determine what tax offset, if any, you're eligible for.
It's important to remember this is a tax offset, not necessarily a lump sum payment into your account. So if you've got a tax bill to pay, the offset will be used to reduce the amount you owe. But if you don't owe any additional tax on top of what your employer has already withheld, or you've paid too much tax throughout the year, then you'll see the tax offset added to your return.
What to do with your tax cut
If you're expecting a tax cut this year, here are a few ways you could put it to good use:
- Make an extra repayment on your home loan.
- Top up your mortgage offset account, so you pay less interest against your home loan.
- Open a high interest savings account or term deposit.
- Buy some shares or invest in an index fund.
- Top up your superannuation by making an extra one-off contribution (this could be especially beneficial if you withdrew money from your super during COVID-19).