Tax Brackets 2021 – How Will You Spend the Extra?

Taxable Income brackets 2020Tax on each dollar of income bracketTaxable Income Brackets 2021Tax on each dollar of Income in bracket
$0- $18,2000$0- $18,2000
$18, 201 – $37,00019c$18,201 – $45,00019c
$37,001- $90,00032.5c$45,001-$120,00032.5c
$90,001- $180,00037c$120,001-$180,00037c
Income ExamplesTotal Tax Payable 2020Income ExamplesTotal Tax Payable 2021
$70,000$14, 334$70,000$13, 327
$120,000$31, 933$120,000$29, 577
$200,000$63, 134$200,000$60, 778
Excluding Medicare levy and assuming no salary sacrificing

Tax Brackets 2021 – Saving You up to $2,356

The 2020 budget announced the Australian government were keeping their word following the 2018 Personal income tax plan. Phase 2 came into effect this year, and will be back dated from July 2020.

The 2021 tax brackets changes mean an increase in net pay of between $1000 and $2356. This is already being recieved in your PAYG pay deposits. Have you noticed and captured it?

Your ATO pay rise equates between $40 – $90 per fortnight extra. This may not seem a lot of money, but over the year is enough to pay for an interstate holiday, or start investing in the stock market.

This extra cash is so easily lost in your account, and accidentally consumed by a slight increase in discretionary spending that doesn’t add much lifestyle benefit.

I am not going to lecture and tell you have to save or invest this. It just depends on your goals and progress with your financial plan so far. If you are on track and will use -this money to make you (+/- your family) happier spend away.

If you are still need to get investing, this could be an easy way to start. It’s money you will never miss if it’s automatically invested. Perhaps you can add a little more each year? You could be amazed how fast it will grow into a significant amount. When you feel you are making progress, delayed gratification starts feeling easier, and far less burdensome.

High Income Earners Benefit Most 2021 Tax Brackets Changes

The more you earn (up to $180,000), the more tax you will save. I’m not sure if that’s fair, but the government are counting $180,000 as middle (rather than high) income earners. The low income tax offset was increased from $445- $700

Mid- high income earners stand to benefit even further if the intended “Phase 3” tax cuts come into effect in 2024. The government may decide they need the tax income more than the economy needs stimulation provided by tax cuts.

2021 tax brackets

Your Tax Return May be Bigger

Talk about a great starter fund for investing. The backdated nature of the tax cuts means PAYG employees may have paid more tax than needed. Readers may recieve a larger tax return this year. What it means for your tax return. Make sure you are prepared for financial year end

Changes in Superannuation Too

There have also been changes to superannuation this year. The concessional contribution has increased from $25,000 to $27,500, in line with inflation. A concessional contribution is money you can put into superannuation and only pay 15% income tax, instead of your marginal rate.

The non-concessional contribution limit has increased from $100,000 to $110,000. Non-concessional contributions are those that you have already paid tax at your marginal rate. There is no tax benefit at entry to super, but income from investments is still taxed at the discount 15% inside super. Many start to use these limits in the years leading up to retirement.

The mandatory super guarantee is due to increase from 9.5% to 10% on July 1 this year. Whether this will actually occur remains debated at this point.

The amount you can rollover from your superannuation accumulation account (paying 15% on investment income) to a retirement income account after preservation age has increased with inflation from $1.6M to 1.7M. Income from this account is generally tax free.

Maximise these Opportunities

Doctors income is notoriously tax inefficient. It makes sense to maximise any opportunity to optimise tax.

To capture the tax cuts options are to

  1. Have a money management system in place that separates discretionary from obligatory spending
  2. Set up a direct debit up to transfer the fortnightly/monthly tax cut into a savings or investment account
  3. Make sure you get your tax return right and use any refund to start or boost and investment, or make a worthwhile investment in your lifestyle.

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