The government has redesigned the stage three tax cuts, which represents a recalibration of the original tax cuts package introduced by the previous Liberal government.
The original package was heavily weighted towards people on the highest incomes, which was considered challenging to justify given the current economic climate. The impact of cost of living pressures on low and middle-income taxpayers saw the introduction of proposed adjustments to the stage 3 tax cuts to provide some additional financial relief for lower income families. So here is the Stage 3 Tax Cuts Explained.
WHAT DOES THE income tax system LOOK LIKE NOW?
The first $18,200 of annual earnings is not taxable. This is often referred to as the tax-free threshold. Then there are four tax brackets representing the percentage of tax an individual will pay on earnings:
19% on earnings between $18,201 and $45,000
32.5% on earnings between $45,001 and $120,000
37% on earnings between $120,001 and $180,000
45% for every dollar earned over $180,000.
2023-2024 tax table
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 STAGE 3 TAX CUTS?
From July 1 2024, the 37% marginal tax rate was to be abolished for those earning more than $120,000 a year. The 32.5% tax rate was to be reduced to 30% for people earning between $45,000 and $200,000. This would see that a single 30% tax bracket would apply for everyone earning between $45,000 and $200,000. Anyone earning over $200,000 would have the current 45% tax rate retained.
However the tax cuts were to deliver most of the benefit to people on higher incomes and nothing for people earning $45,000. This worked out to be only $875 for people earning $80,000 but $9,075 for people earning $200,000.
New Tax Table as of 1 July 2024 (legislated Stage 3 tax cuts)
BRACKET | INCOME RANGE | MARGINAL TAX RATE | TAX PAYABLE |
1 | $0-$18,200 | 0% | Nil |
2 | $18,201-$45,000 | 19% | 19% of excess over $18,201 |
3 | $45,001-$200,000 | 30% | $5,092 + 30% of excess over $45,000 |
4 | $200,001+ | 45% | $51,592 + 45% of excess over $200,000 |
What are the proposed changes? Stage 3 Tax Cuts Explained.
Prime Minister, Anthony Albanese, unveiled the new Stage 3 tax cuts, which include:
19% tax rate is cut to 16%, which saves $804 for people on taxable incomes of $45,000
32.5% rate is cut to 30% for incomes between $45,000 and $135,000
The 37% rate is kept, but the threshold changes for it to apply to people on $135,000.
The 45% tax rate stays, but the threshold changes to $190,000
New proposed and revised tax table of Stage 3 tax cuts, from 1 July 2024
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 |
Prime Minister Anthony Albanese also announced a proposed change to the Medicare low-income threshold. The current Medicare levy is 2% of taxable income, however is not payable by people earning $24,276 or less. After that, the levy increases to a 2% levy, paid by people earning more than $30,345. It was announced that those thresholds are changing to $26,000 and $32,500. This represents a 7.1% increase.
The tax cuts package remains the same cost, however tax savings now are distributed more widely to benefit low and middle income taxpayers.
Stage 3 Tax Cuts Redistribution (excludes Medicare Levy)
TAXABLE INCOME | ORIGINAL STAGE 3 TAX CUT | REVISED STAGE 3 TAX CUT | DIFFERENCE |
$20,000 | $0 | $0 | $0 |
$30,000 | $0 | $354 | $354 |
$40,000 | $0 | $654 | $654 |
$50,000 | $125 | $929 | $804 |
$60,000 | $375 | $1,179 | $804 |
$70,000 | $625 | $1,429 | $804 |
$80,000 | $875 | $1,679 | $804 |
$90,000 | $1,125 | $1,929 | $804 |
$100,000 | $1,375 | $2,179 | $804 |
$120,000 | $1,875 | $2,679 | $804 |
$140,000 | $3,275 | $3,729 | $454 |
$160,000 | $4,675 | $3,729 | - $946 |
$180,000 | $6,075 | $3,729 | - $2,346 |
$200,000 | $9,075 | $4,529 | - $4,546 |
$250,000 | $9,075 | $4,529 | - $4,546 |
If you need help to understand how to maximise your tax returns, book in a time to speak to a chartered accountant.