The personal income tax cuts we’ve eagerly awaited for 1st July 2024 may be getting a makeover. The Federal Government, amid much speculation and buzz, has decided to tweak these legislated Stage 3 tax cuts. This shake-up means a broader group of Aussie taxpayers will see more cash in their pay packets from July.
What will change?
In a nutshell, it’s a win for many but a slight letdown for others. The government’s redesign aims to spread the benefits to households that the cost of living pressures have most heavily impacted.
- The tax free threshold is being lifted from $18,000 to $19,000 (benefting everyone regardless of how much you earn).
- Above $19,000 the tax rates is dropping from 19% to 16% that will apply on income all the way up to $45,000.
- Then from $45,000 up to $135,000 that will flatten out to 30%.
- The big backflip is the re-introduction of the 37% tax bracket which kicks in from $135,000 up to $190,000 (you’ll still be better off in your in this bracket just not by quite as much under the prior scheme).
- Finally the highest tax bracket has been dropped from $200,000 down to $190,000 (which is still $10,000 than the current sheme which sits at $180,000) – meaning If you earn $190,000 you be better of approx. $4,000/a (which is a reduction from approx. $9,000 under the prior scheme).
- There is additional relief for low-income earners with the Medicare Levy low-income thresholds expected to increase in line with inflation. This means an individual will not start paying the 2% Medicare Levy until their income reaches $32,500 (up from $26,000).
Here’s what it means for your wallet:
- The average cut is going to be around $ 804 a year.
- If your taxable income is under $146,486, you may end up with a larger tax cut compared with the existing Stage 3 plan. For example: An individual with 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, if you earn $200,000, your tax cut will be slashed to around half of the original stage 3 plan from $9,075 to $4,529. There is still a benefit compared with current tax rates, just not as much.
In short, everyone wins a prize, some a little less than they were a couple of weeks ago. But for around 11 million Aussies, the prize is a fair bit bigger.
What this looks like based on your income
It’s not a sure thing just yet!
These tax cuts aren’t signed, sealed and delivered just yet. The Government has some legwork to do to turn the proposal into a reality by 1 July 2024. To get the legislation across the line they need to rally the support of the independents and minor parties.
How did we get here?
In the 2018-19 Budget, the Government dropped its plan to give our tax system a much-needed facelift to deal with ‘bracket creep’ (a sneaky little thing where tax rates lag behind wage growth, quietly nibbling away more of your hard-earned cash over time.)
The three stage plan started on 1 July 2018, took another step in 2020 and the grand finale, Stage 3 was set to hit the stage on 1 July 2024.
Each step was like a little nudge to make sure more of your paycheck stayed where it belongs – with you.
The data and the details
If you want to get into the nitty gritty of these tax cuts and changes, have a read of this article from The Treasury.
Any questions or concerns?
If you have any concerns about the impact of the proposed changes please get in touch.
Cheering you on!
Certified Financial Planner®, Director
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Note: The information contained in this update has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs.
You should seek advice before making any decision regarding any information, strategies or products mentioned to consider whether that is appropriate to your own objectives, financial situation and needs.
Current as of 25 January 2024.