In recent years, the Australian government has implemented significant tax reforms aimed at providing cost of living relief to taxpayers. One such reform is the stage 3 tax cuts, which are set to come into effect on 1 July 2024. These changes will amend personal income tax rates and thresholds, offering tax relief for all income earners. Let's explore the upcoming tax changes and discuss how you can utilise them to your advantage.
The stage 3 tax cuts were initially introduced as part of the government's seven-year personal income tax plan in the 2018/19 Federal Budget. These measures were subsequently legislated and further revised in subsequent years. The key change in the upcoming tax cuts is the replacement of marginal tax rates for taxable income from $45,000 to $200,000 with a flat 30% marginal tax rate.
The new stage 3 tax cuts will bring about several changes to tax rates and thresholds in the 2024/25 financial year compared to the current year (2023/24). These changes include:
It's important to note there is no change to the Medicare levy, currently set at 2%.
Below is a table comparing resident tax rates for this current financial year 2023/24 to the new rates for 2024/25 and future years:
| 2023/24 (current year) |
2024/25 and future years |
||
| Thresholds ($) | Rates (%)* | Thresholds ($) | Rates (%)* |
| 0 — 18,200 | 0 | 0 — 18,200 | 0 |
| 18,201 — 45,000 | 19 | 18,201 — 45,000 | 16 |
| 45,001 — 120,000 | 32.5 | 45,001 — 135,000 | 30 |
| 120,001 — 180,000 | 37 | 135,001 to 190,000 | 37 |
| Over 180,000 | 45 | Over 190,000 | 45 |
*Income tax rates only, Medicare not included.
To understand your potential tax saving, the below table provides examples based on different levels taxable income for Australian residents.
Tax savings under the new rates compared to the current year's tax rates:
| Taxable Income | Income tax payable* | Tax saving | |
| 2023/24 - Current year | 2024/25 onwards | ||
| $30,000 | $1,542 | $1,118 | $354 |
| 45,000 | $4,767 | $3,963 | $804 |
| $70,000 | $13,217 | $11,788 | $1,429 |
| $100,000 | $22,967 | $20,788 | $2,179 |
| $135,000 | $35,017 | $31,288 | $3,729 |
| $150,000 | $40,567 | $36,838 | $3,729 |
| $190,000 | $56,167 | $51,638 | $4,529 |
*Medicare levy not included
Now you understand the changes, here are some ways you can utilise the changes for your benefit:
The upcoming tax changes present an opportunity for individuals to optimise their financial strategies. By understanding the revised tax rates and thresholds, you can make informed decisions regarding superannuation contributions, debt repayment, and income deferral. It's essential to consult with a financial advisor to tailor these strategies to individual circumstances and ensure maximum benefit from the upcoming tax changes.
Wherever you are on your financial journey, from early career to retirement, we can help you plan for the future and adjust to changes when 'life' happens. Our advisers can help you achieve your financial goals by bridging the gap of where you are today and where you want to be tomorrow. Get in touch today.
The information and any advice in this article does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. When considering whether to acquire a financial product, before making any decision, you should obtain the relevant product disclosure statement. This article may contain material provided by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. To the maximum extent permitted by law: no guarantee, representation or warranty is given that the information or advice in this newsletter is complete, accurate, up-to-date or fit for any purpose.
