Revised Stage 3 Tax Cut is Official – Discover How Your Income Increases from July 1

By Defy Gunadi March 3, 2024 | Tags: Tax & Accounting, Tax Planning, Tax Tips

Picture this: July rolls around and your paycheck seems just a bit heavier than it did in the last fortnight of June. For middle-income earners across Australia, this isn’t just wishful thinking—it’s about to become reality. In a significant overhaul of tax legislation, the Australian government has revised the previously proposed Stage 3 tax cuts, securing passage through the Senate last Tuesday with support from the House of Representatives. This legislative change promises to provide tax relief to approximately 13.6 million Australian taxpayers from 1 July 2024.

It is a clear win for the government and Prime Minister Anthony Albanese. According to pm page, “These new tax cuts are designed to provide bigger tax cuts for middle Australia to help with cost-of-living, while making our tax system fairer.”

The Australian Institute states, “The redesigned cuts will deliver an additional $84 billion to low- and middle-income earners over the next ten years, greatly improving on the original Morrison-era scheme, which would have seen taxpayers earning under $45,000 receive nothing.”

Overview of the Changes (Stage 3 Tax Cuts)

The revised Stage 3 tax cuts maintain the tax-free threshold at $18,200 while introducing a reduced tax rate of 16% (down from 19%) on incomes up to $45,000. Furthermore, incomes between $45,000 and $135,000 will now be taxed at a rate of 30%, a decrease from the previous 32.5%.

In addition, the 37% tax bracket remains in place for incomes between $135,000 and $190,000. Beyond this threshold, the highest marginal tax rate of 45% applies, starting at $190,000.

Overview of changes as per the Treasury fact sheet –

reduce the 19 per cent tax rate to 16 per cent.

reduce the 32.5 per cent tax rate to 30 per cent.

increase the threshold above which the 37 per cent tax rate applies from $120,000 to $135,000.

increase the threshold above which the 45 per cent tax rate applies from $180,000 to $190,000.

New tax rates from 2024–25:

0 –18,200	Tax free
18,201 – 45,000	16
45,001 – 135,000	30
135,001 – 190,000	37
>190,001	45

The above rates are Excluding Medicare Levy

Stage 3 Tax Cuts — Restructuring of the tax brackets creates clear benefits for specific income groups

Winners and Losers

Approximately 11.5 million taxpayers (84% of the total) will see a larger tax cut than the previous stage three tax cuts according to the government. The restructuring of the tax brackets creates clear benefits for specific income groups:

An individual earning an average income of around $73,000 will receive a tax cut of $1,504, which is $804 more than what would have been provided under the previous government’s framework.

A taxpayer with an income of $40,000 will benefit from a tax cut of $654, in contrast to receiving no tax cut under the previous government’s plan.

Someone earning $100,000 will see a tax reduction of $2,179, which is $804 more than they would have under the previous government’s plan.

However, not everyone stands to gain from these changes. Those with higher taxable incomes around $200,000 will see their anticipated tax cuts halved, resulting in a reduced benefit of $4,529, significantly less than the $9,075 anticipated under the original tax cut proposal.

Additional Adjustments

The tax reform also includes modifications to the Medicare Levy, a flat 2 per cent charge to most taxpayers, which is effectively extra income tax. Previously, individuals started paying a 2% Medicare Levy once their income exceeded $26,000. Post-reform, the threshold has been elevated to $32,500, adjusted for inflation. This adjustment is poised to exempt more low-income earners from the levy, easing their financial burden.

This adjustment is poised to exempt more low-income earners from the levy, easing their financial burden

ABC News report indicates that the threshold has been raised by 7.1% to align with inflation. Consequently, low-income earners will benefit from up to $172 in additional tax relief due to adjustments made to the Medicare Levy

As we close the chapter on this discussion, it’s clear that the upcoming tax changes are more than just numbers on paper—they’re a gateway to a brighter financial future, especially for middle-income earners. For those looking to navigate these changes with ease and ensure the most favourable tax outcomes, professional guidance can be invaluable. Investax offers expert guidance in tax planning and optimisation, ensuring that individuals can make the most of the new tax framework. Engaging with Investax could provide the clarity and strategic direction needed to enhance your financial outcomes under the revised tax regime.

Pro Tips

Understand Your Bracket: Familiarise yourself with the new tax brackets and rates to understand how your income will be taxed. This knowledge is foundational for effective tax planning.

Consider Timing of Income and Expenses: If possible, strategize the timing of your income and expenses to take full advantage of the tax brackets. For instance, deferring income or bringing forward expenses could prove beneficial in certain circumstances.

Contribute to Superannuation: For those with incomes ranging from $180,000 to $200,000, it’s wise to re-evaluate your superannuation contributions in 2024, especially if you have unused super capacity. Presently, incomes exceeding $180,000 are taxed at 45%, but this threshold will rise to $190,000 starting July 2024. By strategically increasing your superannuation contributions, you not only embrace a tax-efficient approach to retirement savings but also stand a chance to reduce your taxable income, potentially bringing you into a more favourable tax bracket.

Explore Tax-Efficient Investment Strategies: Investigate investment avenues that provide tax advantages, such as the tax deductions available through negative gearing on investment properties. Aligning such strategies with the new tax bracket adjustments can enhance your financial efficiency, ensuring your investments are not only fruitful but also tax-optimized considering the upcoming changes.

Consider Implementing a Trust Structure for Your Investments: If your portfolio includes dividend-yielding shares or you’re contemplating acquiring positively geared property, and you have family members in lower income brackets, a family trust could be a strategic tool. By channelling dividend or rental income to lower-earning family members like your spouse or children through the trust, you can effectively distribute the tax burden and potentially lower your overall tax rate within the new bracket framework.

Seek Professional Advice: Tax laws can be complex and ever-changing. Consult with a tax professional or financial advisor to tailor a tax strategy that aligns with your personal and financial circumstances. If you do not have an accountant who can provide this level of tailored advice and assist with your tax planning, consider reaching out to Investax. Our team is equipped to offer the guidance you need to make informed decisions in alignment with the latest tax laws.