Retrospective tax cuts will take time

PAYG Institute of Public Accountants 2020 budget 2020 federal budget

9 October 2020
| By Chris Dastoor |
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The economic benefits of the backdated tax cuts may have a delayed economic benefit as the Australian Tax Office (ATO) is unable to retrospectively deal with Pay As You Go (PAYG) overpaid for the quarter of the year, according to the Institute of Public Accountants (IPA).

The Federal Government announced it would bring forward the Stage Two tax cuts to this years’ budget, which was backdated to begin from the beginning of the financial year.

Andrew Conway, IPA chief executive, said the retrospective nature of these tax cuts meant that they may not be realised by some until the end of the calendar year, which reduced the immediate impact on the economy.

“Therefore, many salary and wage earners may not get the ‘backpay’ for the months of July, August and September as instantly as first thought,” Conway said.

“If you take someone who was going to receive the maximum benefit of $2,564, one quarter of this amount i.e. $641 has already accrued and will not be immediately available to stimulate the economy as intended.

“The ATO has communicated that it will not be adjusting withholding tables to pick up the overpayments.”

Conway said if the ATO did this, it could create a scenario where taxpayers found themselves underpaying tax during the year, creating tax debt to deal with when they lodge their annual return, which could potentially lead to another robo-debt situation. 

“In any other given year, with a Budget in May, this issue would have been mitigated as the lag time between the end of the financial year and changes to tax tables would have been quite short,” Conway said.

“In addition, tax table changes are normally adjusted prospectively to start from 1 July of the next financial year, so we are dealing with uncharted waters.

“Treasury’s ideal scenario is that this money would be out in the economy as soon as possible and being spent so that the sugar hit delivered by the tax cuts was more immediate.   

“We had hoped that single touch payroll may have allowed for the flexibility to deliver the desired outcome. However, this does not seem to be the case.”

Taxpayers earning income outside of wages and salaries could immediately take advantage of Stage Two tax cuts by varying down their quarterly instalment in the September Business Activity Statement (BAS) which was due on 28 October, 2020.

“Small business entrepreneurs are mostly unincorporated entities and therefore are also beneficiaries of the Stage Two tax cuts,” Conway said.

“We are encouraging all our members to vary down PAYG to take advantage of this initiative.”

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