How Stage 3 Tax Cuts Will Affect Your Household Finances?
How Stage 3 Tax Cuts Will Affect Your Household Finances?
Did you know that nearly 13.6 million Australian taxpayers are set to benefit from the revised Stage 3 tax cuts?
This significant change to Australia’s tax system, coming into effect on 1 July 2024, will reshape household finances across the nation.
With mortgage rates, fuel prices, and everyday expenses continuing to rise, these tax changes aim to reduce the tax burden on a greater portion of the population.
But what exactly do these new cuts mean for your household finances? Let’s find out!
A Look At The Income Tax System Before The Stage 3 Cuts
Before diving into the upcoming changes, it’s important to understand how the tax system has worked up until now.
Here’s a breakdown of the 2023-24 tax rates:
| Bracket | Income Range | Marginal Tax Rate | Tax Payable |
|---|---|---|---|
| 1 | $0 – $18,200 | 0% | Nil |
| 2 | $18,201 – $45,000 | 19% | 19% of excess over $18,200 |
| 3 | $45,001 – $120,000 | 32.5% | $5,092 + 32.5% of excess over $45,000 |
| 4 | $120,001 – $180,000 | 37% | $29,467 + 37% of excess over $120,000 |
| 5 | $180,001+ | 45% | $51,667 + 45% of excess over $180,000 |
What Were The Original Stage 3 Cuts?
Initially, the Stage 3 tax cuts were scheduled to reduce the marginal tax rate of 37% for individuals earning more than $120,000, and the 32.5% tax rate for those earning between $45,000 and $200,000 would drop to 30%.
This would have meant a significant benefit for those on higher incomes, with minimal relief for middle-income earners. However, this design received criticism for being disproportionate, as those earning more than $200,000 stood to gain around $9,075 in tax savings, while someone earning $80,000 would only save $875.
Understanding The New Tax Structure
From 1 July 2024, the Australian tax system will see significant changes. Here’s a breakdown of the new tax brackets:
| Bracket | Income Range | Marginal Tax Rate | Tax Payable |
|---|---|---|---|
| 1 | $0 – $18,200 | 0% | Nil |
| 2 | $18,201 – $45,000 | 16% | 16% of excess over $18,201 |
| 3 | $45,001 – $135,000 | 30% | $4,288 + 30% of excess over $45,000 |
| 4 | $135,001 – $190,000 | 37% | $31,288 + 37% of excess over $135,000 |
| 5 | $190,001+ | 45% | $51,638 + 45% of excess over $190,000 |
Key Changes In The Revised Stage 3 Tax Cuts
The new tax cut has now more to offer low and middle income earners while it decreases benefits to those on higher income.
Some of the changes are:
- The 19% tax rate that was applicable to individuals who earned between $18,201 and $45,000 drops to 16%, which will lead to a saving of $804 for someone who earns $45,000 within a year.
- The 32.5% tax band applicable to individuals whose earnings were between $45,001 and $135,000 is now reduced to 30%, while the earning threshold is raised up to $135,000.
- 37% tax remains applicable but it is limited only for people with an earning range of $135,001 through $190,000.
- Moreover there is no change in the 45% tax band for individuals whose salaries are above $190,001 though the income threshold has been adjusted downwards by 10 thousand dollars from the original one.
The overall outcome of the new tax structure brings down tax privileges for higher earners greatly while offering increased relief to low-and middle income earners.
What Do These Changes Mean For Your Household?
The revised tax cuts are designed to provide more substantial benefits to low and middle-income earners.
Here’s how different income groups will be affected:
| Income Level | Annual Tax Savings |
|---|---|
| $30,000 | $354 |
| $60,000 | $1,179 |
| $100,000 | $2,179 |
| $140,000 | $3,729 |
| $200,000 | $4,529 |
It’s important to note that while high-income earners will still see tax cuts, the benefits are more evenly distributed across income brackets compared to the original plan.
Changes To Medicare Levy Thresholds
The other measures that will be implemented are the change in the low-income threshold of the Medicare levy. Proposed changes for the financial year 2024-25 have set a new threshold at $26,000 and thus, any one earning $26,000 or less will not be required to pay this Medicare levy. This gradual progression is illustrated by the fact that the full 2% is only paid where the income is more than $32 500.
Real Life Implication Of Stage 3 Tax Cuts On Your Home
- More Household Disposable Income – Majority of the Australian households will notice an improvement of additional earnings as they head home giving them some sort of relief on escalating living expenses.
- Opportunity to Save or Pay Less Credit – The additional income might be an opportunity for enhancing the savings or paying earlier the credits, respectively, depending on the financial position.
- Non-Have Any Effect on the Current Year’s Tax Filing – It is necessary to understand that above changes are not going to have any impact on the tax refund for the financial year of 2023-24.
- Employers will implement these changes automatically from the first of July 2024, and Thus you do not need to do anything to get these changes.
Count on KPG Taxation to provide precision and quickness when filing for your income-tax whether you need help from professionals or not. We have people who will guarantee that the process of tax planning is not a stressful one and that the best results can be achieved wherever they may be in the spectrum of claiming refunds or staying clear of the ATO. Contact us today to ease your tax issues and let us handle all the complex situations.
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