How to get your backdated tax cut

 

A huge number of Australians will immediately begin paying less income tax - and they'll reap the benefit very soon.

In his Budget on Tuesday night, Treasurer Josh Frydenberg confirmed that tax cuts are being brought forward to help the economy recover from the coronavirus crisis.

And in an unprecedented move, they'll be backdated to July 1 this year. That means workers don't have to wait until they do their next tax return to start paying less.

But the mechanism for fast-tracking the hip pocket relief is complicated and the timing is a little uncertain.
Here's what we know so far.

WHEN IT WILL HAPPEN

Mr Frydenberg wants that extra money to be in your pocket as soon as possible and a bunch of number-crunching boffins in Canberra will soon be hard at work.

In a nut shell, once the Australian Taxation Offfice is confident that the Budget will be passed by Parliament, it'll begin the process of enacting the change.

This will happen either when the legislation passes, or if the Opposition pledges to support the tax cut measures.

Given that, the government can't put a firm date on it, but it's expected to happen by the end of the year - just in time for the crucial Christmas retail period.

"More than 11 million taxpayers will get a tax cut backdated to July 1 this year," Mr Frydenberg said.

"Australians will have more of their own money to spend on what matters to them, generating billions of dollars of economic activity and creating 50,000 new jobs.

"It will help local businesses to keep their doors open and hire more staff."

RELATED: How much you'll get back in tax cuts

 

HOW IT WILL HAPPEN

Once the Budget passes Parliament, or the ATO is confident that it will, it will adjust its tax threshhold schedule.

That's basically the different brackets that determine how much your employer keeps aside in tax for the government.

Those new schedules will flow through to employers so they know what your next tax payable amount will immediately be.

 

 

WILL THERE BE BACK PAY?

Let's say all of the above is in place by the end of the year... what about the period from July 1, when the tax cuts will be backdated to, and December?

Unfortunately, it's simply too difficult to give people a lump sum to account for the amount of tax they've likely overpaid in that several month period.

Instead, when you do your income tax return after June 30 next year, you'll be eligible for a refund of the amount you've overpaid.

Consider it forced savings.

 

WHAT DO YOU HAVE TO DO?

In theory, you don't need to do anything.

Once the ATO has adjusted its threshholds and employers have updated their accounting and payroll software, you'll be ready to get more pay in your pocket.

Some small business operators might need a little help with the process, especially if their payroll practices are manual.

But for the vast majority of Australian employers who use popular accounting software, it will be pretty straightforward.

Originally published as How to get your backdated tax cut



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