Depending on income, the legislation passed on Thursday will give Australian taxpayers an extra $255 to $1,080. What it means for you

Income tax cuts 2019 calculator: how much money you will get – explained

The government’s tax cut package passed parliament on Thursday evening after weeks of political wrangling.

But what will happen now, what does it mean, how much money can you expect and when?

How much will I get?

Between $255 and $1,080, depending on how much you earn.

And you’ll get it almost immediately – the cut will apply to the tax return you are about to file (or just did) for the 2018-19 financial year.

Remember, the figures below are for the year that just passed, that is, the tax return you are about to do.

Income tax cuts battle heats up: what you'll get Read more

If you earned:

Under $37,000 – you will get $255 back.

Between $37,000 and $48,000 – $255 back plus 7.5% of what is over $37,000 (so that’s between $255 and $1,080).

Between $48,000 and $90,000 – $1,080 back, flat. No calculations needed.

Between $90,000 and $126,000 – $1,080 back but minus 3% of what is over $90,000 (so between $1,080 and $0).

Over $126,000 – zero.

Some examples:

A person earning $35,000 gets $255 back

$45,000 gets $855 back

$55,000 gets $1,080 back

$80,000 also gets $1,080 back

$100,000 gets $780 back

$120,000 gets $180 back

Income tax cuts calculator

What if I already submitted my tax return?

Don’t worry! You will still get the tax cut.

The legislation is retrospective – so it will affect the return you submitted on 1, 2, 3 or 4 July.

The ATO promises: “If these proposed changes become law, and you have received your income tax assessment we will automatically amend your assessment for you if your offset increases. You won’t have to do anything.”

So it applies to my old tax returns?

Not last year’s, just this year. The one you are about to file – or filed on Monday that relates to your earnings in 2018-19. Not the one you did in 2018.

Am I better off?

Yes. But by $500, not $1,000.

Remember – a similar tax cut was already due to come in for the 2018-19 financial year, before the government passed this bill. The bill that just passed is increasing them, not inventing them.

In June 2018, the government passed tax cuts of up to $530.

So if the bill hadn’t passed, you still would have received:

$200 back – if you earned below $37,000

$200 back, plus 3% of everything over $37,000 – if you were between $37,000 and $48,000

$530 back (flat) – if you earned between $48,000 and $90,000

$530 back, minus 1.5% of everything over $90,000 – if you earn over $90,000

So the government has boosted the $200 offset to $255, boosted the percentage you get back from 3% to 7.5% for people between $37,000 and $48,000, and doubled that $530 to $1,080 for everyone else.

It has also doubled the percentage that is deducted (from 3% to 1.5%) for those earning over $90,000.

So, back to the examples from before:

Someone earning $35,000 is $55 better off (from $200 to $255)

$45,000 equals $425 better off (from $440 to $855)

$55,000 and $80,000 equals $550 better off (from $530 to $1,080)

$100,000 equals $400 better off (from $380 to $780)

$120,000 equals $80 better off (from $100 to $180)

Will it be around forever?

No. You’ll get this tax cut for four years (including the tax return you’re about to file).

But then it will be gone. It is an explicitly temporary measure.

So it will apply to the tax return you’re about to file (2018-19), next year’s (2019-20) and the next two years after that (2020-21 and 2021-22).

After 1 July 2022, it will disappear.

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What comes after that?

The tax offset ends in 2022, but at this point the second stage of the tax plan comes into effect.

At this point the government will (a) move one of the low tax brackets higher to include more people; and (b) increase the low income tax breaks, known as the Lito. Again, the Lito already exists. But after July 2022, it will increase.

It will boost the bottom bracket from $41,000 to $45,000. So those earning $45,000 will be in the 19% tax bracket, not the 32.5% bracket.

I’ve heard a lot about Stage 2 and Stage 3. What do they mean?

The money you’re about to get is Stage 1.

Stage 2, due to come into effect in 2022, has several measures.

It lifts the threshold for the 37% tax bracket from $90,000 up to $120,000.

It also increases the low-income tax offset from $445 to $645 and lifts the top threshold for the 19% tax rate from $37,000 to $41,000.

Stage 3 is more controversial. It reduces the tax rate for those earning between $45,000 and $200,000 to 30 cents in the dollar. That is slated for 1 July 2024.

This is on top of the already legislated change that abolished the 37% tax rate, and put in place a 32.5% rate for those earning between $41,000 and $200,000.

What will it cost the budget?

Giving out tax cuts has a price. It will reduce the amount the government receives in revenue – potentially affecting whether or not it delivers a surplus.

Over the 10 years to 2029-30, the cost of the tax cut package is $158bn.

Broken down by stages, the first stage costs $15bn, the second stage $48bn and the third stage $95bn.

Over the four-year forward estimates, the cost is $19.5bn, comprising $3.5bn in 2019-20, $3.7bn in 2020-21, $3.8bn in 2021-22 and $8.6bn in 2022-23.

Combined with the $144bn in tax cuts announced in the 2018-19 budget and passed in the previous parliament, the total package now amounts to $302bn over 10 years.

What’s the difference between this and however much I would have already received on my tax return?

Most people will just get an extra $1,080 added to their tax return.

But not always. This tax cut should not be confused with the tax return; they are not the same.

A tax return is what you get if you overpaid your tax throughout the year – usually because you use PAYG. If you were supposed to pay $5,000 in tax but you were taxed $7,000, you will get $2,000 back.

The tax cut this week is a tax offset. It means it reduces the amount of tax you were supposed to pay. That $5,000 goes down to $4,000. You were still taxed $7,000. You get $3,000 back.

But the tax cut can’t on its own give you a refund. So if you owe less than $1,080 in tax, you won’t get money credited.

You also still have to pay the Medicare levy of 2%. So you could, theoretically, have a $1,080 tax bill and a $1,080 offset and pay no tax – but still pay the 2% levy.