Income Tax Cuts Calculator - Australia Federal Budget 2020/21
Enter your taxable income to see your exact tax saving from the Stage 2 cuts brought forward in the 2020/21 Australian Federal Budget.
🦘 What is the Australia Federal Budget 2020/21 Income Tax Cuts Calculator?
Australia's 2020/21 Federal Budget, announced on October 6, 2020, brought forward Stage 2 of the government's personal income tax plan by two years. These cuts were originally legislated to begin in FY2022-23 but were accelerated to FY2020-21 as a COVID-19 economic stimulus measure. This calculator shows your exact personal tax saving from those cuts by comparing your net income tax under the old 2019-20 rate schedule versus the new 2020-21 rates.
The core changes were twofold. First, the 19% tax bracket threshold was raised from $37,000 to $45,000, meaning income between $37,001 and $45,000 now attracted a 19% marginal rate instead of the lower edge of the 32.5% bracket. Second, the 32.5% threshold was raised from $90,000 to $120,000, so income between $90,001 and $120,000 now attracted 32.5% instead of 37%. Third, the Low Income Tax Offset (LITO) was increased from $445 to $700. The Low and Middle Income Tax Offset (LMITO) of up to $1,080 was retained in both years, so it does not create a difference between the two schedules but is shown for completeness.
A common point of confusion is the difference between the LITO (permanent) and the LMITO (temporary, removed after FY2021-22). Both are non-refundable offsets that reduce your income tax liability to a minimum of zero before the Medicare Levy is added. The Medicare Levy itself (2% of taxable income) cannot be offset by LITO or LMITO. This means the true net tax always includes at least the Medicare Levy for incomes above the Medicare Levy threshold of approximately $23,226.
The calculator is useful as a reference tool for taxpayers and accountants who need to understand the 2020-21 tax year's rules in detail. It is also instructive for understanding how the multi-stage Australian tax reform worked in practice and how the LITO phase-out creates an effective marginal rate higher than the nominal bracket rate in certain income ranges.
📐 Formula
Net tax = max(0, Bracket Tax − LITO − LMITO) + Medicare Levy
Bracket Tax (2020-21): $0 on first $18,200 | 19% on $18,201 to $45,000 | $5,092 + 32.5% on $45,001 to $120,000 | $29,467 + 37% on $120,001 to $180,000 | $51,667 + 45% above $180,000
Bracket Tax (2019-20): $0 on first $18,200 | 19% on $18,201 to $37,000 | $3,572 + 32.5% on $37,001 to $90,000 | $20,797 + 37% on $90,001 to $180,000 | $54,097 + 45% above $180,000
LITO (2020-21): $700 up to $37,500 | phases to $325 at $45,000 | phases to $0 at $66,667
LITO (2019-20): $445 up to $37,500 | phases to $0 at $66,667
LMITO (both years): $255 to $1,080 for incomes $0 to $90,000 | phases to $0 at $126,000
Medicare Levy: 2% of taxable income (reduced for incomes below $29,033)
Tax saving: Net tax 2019-20 minus Net tax 2020-21
Example: $80,000 income. Bracket 2021 = $22,217. LITO = $0. LMITO = $0. Medicare = $1,600. Net 2021 = $23,817. Bracket 1920 = $23,717. LITO = $0. LMITO = $0. Medicare = $1,600. Net 1920 = $25,317. Saving = $1,500.
📖 How to Use This Calculator
Steps
1
Enter your taxable income - Type your FY2020-21 taxable income (income after allowable deductions but before tax offsets). Use the slider or type the amount directly. The display updates as you move the slider.
2
Click Calculate - The calculator shows your tax saving from the budget, net tax under both year's rules, take-home income, and a detailed breakdown table of bracket tax, LITO, LMITO, Medicare Levy, and effective rate for both years side by side.
3
Read the comparison table - The table compares 2019-20 and 2020-21 components side by side. LMITO and Medicare Levy are the same for both years; the difference comes from bracket tax and LITO changes.
💡 Example Calculations
Example 1 - $80,000 Taxable Income
Middle-income earner: how much did the 2020/21 budget save?
1
2019-20 bracket tax on $80,000: $20,797 + ($80,000 - $90,000 is negative, so use $37,001 to $90,000 band) = $3,572 + ($80,000 - $37,000) x 0.325 = $3,572 + $13,975 = $17,547. LITO = $0. LMITO = $0 (over $90,000 phase-out? No, $80,000 earns LMITO $1,080 reduced by ($80,000 - $90,000)... wait $80,000 is in $48,001 - $90,000 flat zone). LMITO = $1,080. Medicare = $1,600. Net 2019-20 = $17,547 + $1,600 - $1,080 = $18,067.
2
2020-21 bracket tax on $80,000: $5,092 + ($80,000 - $45,000) x 0.325 = $5,092 + $11,375 = $16,467. LITO = $0 (over $66,667). LMITO = $1,080. Medicare = $1,600. Net 2020-21 = $16,467 + $1,600 - $1,080 = $16,987.
3
Tax saving = $18,067 - $16,987 = $1,080. The saving equals the exact threshold band change at this income level.
Tax saving: A$1,080 | Net tax (2020-21): A$16,987 | Effective rate: 21.2%
Try this example →Example 2 - $45,000 Taxable Income
Income right at the new 19% / 32.5% boundary
1
2019-20 bracket: $3,572 + ($45,000 - $37,000) x 0.325 = $3,572 + $2,600 = $6,172. LITO 1920 = $0 (income above $66,667 phase-out boundary? No, $45,000 is in $37,501-$66,667 phase-out: $445 - ($45,000-$37,500) x 0.015 = $445 - $112.50 = $332.50). LMITO = $1,080. Medicare = $900. Net 1920 = max(0, $6,172 - $332.50 - $1,080) + $900 = $4,759.50 + $900 = $5,659.50.
2
2020-21 bracket: ($45,000 - $18,200) x 0.19 = $26,800 x 0.19 = $5,092. LITO 2021 at $45,000: $700 - ($45,000-$37,500) x 0.05 = $700 - $375 = $325. LMITO = $1,080. Medicare = $900. Net 2021 = max(0, $5,092 - $325 - $1,080) + $900 = $3,687 + $900 = $4,587.
Tax saving: A$1,072 | Effective rate (2020-21): 10.2%
Try this example →Example 3 - $120,000 Taxable Income
Upper-middle income: maximum saving from the 32.5% threshold rise
1
2019-20 bracket: $20,797 + ($120,000 - $90,000) x 0.37 = $20,797 + $11,100 = $31,897. LITO = $0. LMITO = $0 (over $126,000? No, $120,000 is below; LMITO = $1,080 - ($120,000 - $90,000) x 0.03 = $1,080 - $900 = $180). Medicare = $2,400. Net 1920 = max(0, $31,897 - $0 - $180) + $2,400 = $34,117.
2
2020-21 bracket: $29,467 + ($120,000 - $120,000) x 0.37 = $29,467. LITO = $0. LMITO = $180. Medicare = $2,400. Net 2021 = max(0, $29,467 - $0 - $180) + $2,400 = $31,687.
Tax saving: A$2,430 | Net tax (2020-21): A$31,687 | Effective rate: 26.4%
Try this example →❓ Frequently Asked Questions
What were Australia's 2020/21 Federal Budget income tax cuts?
The 2020/21 budget announced on October 6, 2020 brought forward Stage 2 of the personal income tax plan by two years. The 19% rate threshold was raised from $37,000 to $45,000. The 32.5% rate threshold was raised from $90,000 to $120,000. The Low Income Tax Offset (LITO) was increased from $445 to $700. These changes applied retrospectively from 1 July 2020, delivered via adjusted PAYG withholding tables from October 2020 and the FY2020-21 tax return process.
Who benefited most from the 2020/21 Australian tax cuts?
The biggest savings went to taxpayers earning between $45,000 and $120,000. A person on $80,000 saved about $1,080-$1,455. At $120,000, the maximum saving from the 32.5% threshold rise was $2,430 (30,000 x 0.045 = difference from moving from 37% to 32.5% on the $90,001-$120,000 band). Earners above $120,000 also saved the same $2,430 but received no additional benefit from the threshold changes. Very low incomes (below $37,000) received a saving primarily from the increased LITO.
What are Australia's 2020-21 income tax brackets?
For Australian tax residents in FY2020-21: $0 to $18,200 at 0% (tax-free threshold); $18,201 to $45,000 at 19 cents per dollar over $18,200; $45,001 to $120,000 at $5,092 plus 32.5 cents per dollar over $45,000; $120,001 to $180,000 at $29,467 plus 37 cents per dollar over $120,000; above $180,000 at $51,667 plus 45 cents per dollar over $180,000. These rates apply before tax offsets (LITO, LMITO) and before the Medicare Levy.
What was the Low Income Tax Offset (LITO) in 2020-21?
The LITO for FY2020-21 was $700 for taxable incomes up to $37,500. It then phased out at 5 cents per dollar between $37,500 and $45,000 (reaching $325 at $45,000), and continued phasing out at 1.5 cents per dollar between $45,000 and $66,667 (reaching zero). In the previous year (FY2019-20), the LITO was $445, phasing out at 1.5 cents per dollar from $37,500 to $66,667. The LITO increase was part of the Stage 2 measures brought forward.
What is the LMITO and was it included in the 2020/21 budget cuts?
The Low and Middle Income Tax Offset (LMITO) of up to $1,080 was introduced in FY2018-19 and retained in FY2020-21. It was not a new budget measure in 2020/21; it simply continued from prior years. Because the LMITO applied to both FY2019-20 and FY2020-21, it does not create a difference between the two years and is not part of the "tax saving from the budget." It was finally removed after FY2021-22 when the revised Stage 3 came into effect.
How does the Medicare Levy interact with tax offsets?
The Medicare Levy (2% of taxable income) is charged separately and cannot be reduced by the LITO or LMITO. Tax offsets reduce your income tax (bracket tax) to a floor of zero, after which the Medicare Levy is added on top. This means even a taxpayer whose bracket tax is fully offset by LITO and LMITO still owes the full 2% Medicare Levy. The effective minimum tax rate for most working Australians is therefore around 2% (just the Medicare Levy) for incomes above the threshold.
Were the 2020/21 tax cuts permanent?
Yes, the Stage 2 thresholds ($45,000 and $120,000) became permanent rate boundaries from FY2020-21 onwards. They were not temporary COVID measures. However, the overall rate structure was further changed by the revised Stage 3 cuts that took effect from FY2024-25 under the Albanese Government. The LMITO was temporary and ended after FY2021-22. The LITO remains permanent, currently at $700 (the 2020-21 level).
What is the effective marginal tax rate for incomes in the LITO phase-out range?
In the LITO phase-out ranges, the effective marginal tax rate is higher than the nominal bracket rate because each extra dollar earns less offset. Between $37,500 and $45,000 in FY2020-21, the nominal rate is 19% but the LITO phase-out adds 5 cents per dollar, giving an effective rate of 24%. Between $45,000 and $66,667, the nominal rate is 32.5% but the LITO adds 1.5 cents, giving 34%. These notch effects are a well-known complexity in Australia's tax offset design.
What income earns the maximum LMITO of $1,080?
The LMITO of $1,080 applied at its maximum for taxable incomes between $48,000 and $90,000 in FY2020-21. Below $48,000, the LMITO was lower (phasing up from $255 at zero income to $1,080 at $48,000 at 7.5 cents per dollar above $37,000). Above $90,000, the LMITO phased out at 3 cents per dollar, reaching zero at $126,000. A taxpayer on exactly $60,000, $70,000, or $80,000 all received the maximum $1,080 LMITO.
How did the 2020/21 budget changes interact with tax withholding?
The ATO issued updated PAYG withholding tax tables in mid-October 2020, about 10 days after the budget announcement. Employers using these updated tables withheld less tax from wages from October 2020 onwards, meaning workers saw more in their take-home pay immediately. Any shortfall for the July to October period (when the old rates were still being withheld) was reconciled at tax return time as a refund, since the lower 2020-21 rates applied to the full year from July 1, 2020.
Is this calculator relevant for FY2021-22 or later years?
No. This calculator specifically models FY2020-21 (1 July 2020 to 30 June 2021) versus FY2019-20 rates. The brackets and LITO amounts changed in subsequent years. For FY2021-22 and FY2022-23, the Stage 2 rates (same as 2020-21 brackets) applied but the LMITO was eventually removed. From FY2024-25, the revised Stage 3 cuts introduced further changes (16% on $18,201 to $45,000, 30% on $45,001 to $135,000). For those years, consult the ATO directly or use a current-year tax calculator.
Where can I verify these calculations against official ATO data?
The official source for Australian income tax rates is the Australian Taxation Office at ato.gov.au. Search for "Individual income tax rates" and select the FY2020-21 year. The ATO's Income Tax Estimator tool can also cross-check results. The 2020-21 Budget Paper No. 2 (available at budget.gov.au) contains the formal legislative references for the Stage 2 measures brought forward under the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020.