Federal Budget 2020

Make your tax cuts work for you


Tax cuts are the golden ticket at Federal Budget time. The Government loves to give them and taxpayers love to get them. But tax is rarely simple.

As part of the Government’s three phase tax plan, we were promised a second phase of tax cuts to hit our pay packets from July 2021, but this year’s Budget backdated them to July this year.

The reduced tax will start in a few weeks, but the ‘pay back’ of cuts from the months already gone will come as a windfall in our 2020/21 tax returns.

What does this mean for me?

These Phase 2 cuts focus on middle income earners. Phase 1 of the plan gave the greatest tax cuts to low income earners. Tax cuts for high income earners are expected in Phase 3. 

Here are the tax savings for different before-tax incomes, based on their change from last year (2019/20 tax year):

Annual income


















Source: Budget 2020 Income Tax Calculator, ABC News, 7 October 2020.

In more 2020 Budget generosity, the Low to Middle Income Tax Offset (LMITO) has been increased from $455 to $700 and extended for another year. So if you’re eligible, you will receive that as well it in this financial year’s tax return.

An added bonus is that the next step of the Government’s tax plan, which comes into effect in July 2021, means your super guarantee (SG) contributions rise to 10% from 9.5%.


Boost the economy or your super?

The uncertain economic environment means some people may want to save the extra money in their tax return for a rainy day, but others may choose to use it for things they feel they’ve needed for a long time.

Because this is a stimulus Budget, the Government’s intention is that we spend the extra money to get the COVID-affected economy moving again, which is good.

Financial experts suggest it’s important to think about what you do with your tax return windfall so it can support you best.

Experts believe that many people will be in great need of the money, but if you can afford to put the extra into your super for the long term, it may strengthen your retirement options. This may be especially true for people who took advantage of the recent COVID-19 early access provision to take money out of their super. They might want to rebuild their balance after a difficult financial period.

Before tax or after tax?

The Budget concentrated on youth employment incentives and offered little for those closer to retirement. Broadly, there are always choices to be made about super when the Government changes the tax thresholds.

Whenever the Government changes the rates of tax, it can be a good idea to take a step back and ask whether extra contributions to super are worthwhile at your tax rate and if so, which type of contribution – before or after tax - works best for your situation.

The super contributions taken out of your before-tax pay are taxed at 15% when they go into your account. For most people this is a lower rate than their marginal tax rate. If you earn below $45,000 or above $180,000, it may be worth looking at after-tax spouse contributions, which could provide a greater tax benefit than before-tax contributions.

We can help you understand which type of contribution works best for your own personal circumstances. To speak to a licensed financial adviser over the phone at no cost, call the Helpline on 1800 635 796.

[Source: Mercer]



This article has been prepared by LCA Nominees Pty Ltd ABN 61 008 204 939 as Trustee for Lutheran Super ABN 93 371 348 387 AFS Licence #240571 MySuper authorisation 93371348387621 for the general information of members of Lutheran Super. The information in this article includes general financial product advice which has been prepared without taking into account your objectives, financial situation or needs. We recommend that you determine the appropriateness of this advice and seek independent professional financial advice from a licensed financial adviser before acting on any information contained in this email. The Trustee reserves the right to correct any errors or omissions. Past performance should not be relied upon as an indicator of future performance.

The Lutheran Super Helpline and the Lutheran Super website are provided by Mercer Outsourcing (Australia) Pty Ltd, ABN 83 068 908 912, AFSL #411980. Address: GPO Box 4303 Melbourne VIC 3001. Tel: 1800 635 796.

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