After much speculation, the Government has announced that they will amend the legislated Stage 3 tax cuts scheduled to commence on 1 July 2024.
So, What Does This Mean?
The revised tax cuts redistribute the reforms to benefit lower-income households that have been disproportionately impacted by the cost of living pressures.
More Australian taxpayers will receive a personal income tax cut and take home more in their pay packet from 1 July, but for some, the impact will be less favourable than it would have been before the redesign.
Under the proposed redesign, all resident taxpayers with taxable income under $146,486 will receive a larger tax cut compared with the existing Stage 3 plan. For example:
- An individual with a taxable income of $40,000 will receive a tax cut of $654, in contrast to receiving no tax cut under the current Stage 3 plan.
- An individual with a taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan.
However, an individual earning $200,000 will have the benefit of the Stage 3 plan slashed to around half of what was expected from $9,075 to $4,529. There is still a benefit compared with current tax rates, just not as much.
Furthermore, the Government will be providing additional relief for low-income earners with the Medicare Levy low-income thresholds expected to increase by 7.1% in line with inflation.
It is expected that an individual will not start paying the 2% Medicare Levy until their income reaches $32,500 (up from $26,000).
While the proposed redesign is intended to be broadly revenue-neutral compared with the existing budgeted Stage 3 plan, it will cost around $1 billion more over the next four years before bracket creep starts to diminish the gains.
Take a look at the current, legislated, and redesigned Stage 3 tax rates for Australian resident taxpayers:
| Tax rate | 2023-24 | 2024-25 Legislated | 2024-25 Proposed |
|---|---|---|---|
| 0% | $0 – $18,200 | $0 – $18,200 | $0 – $18,200 |
| 16% | $18,201 – $45,000 | ||
| 19% | $18,201 – $45,000 | $18,201 – $45,000 | |
| 30% | $45,001 – $200,000 | $45,001 – $135,000 | |
| 32.5% | $45,001 – $120,000 | ||
| 37% | $120,001 – $180,000 | $135,001 – $190,000 | |
| 45% | >$180,000 | >$200,000 | >$190,000 |
If you have any concerns about the impact of the proposed changes on your finances, contact our Walker Hill Accounting team today! support@walkerhill.com.au.
