The personal income tax cuts legislated to commence on 1 July 2024 will be realigned and redistributed under a proposal released by the Federal Government.
Following considerable discussion, the Australian Government has announced changes to the planned Stage 3 tax cuts starting from 1 July 2024. As a result of these amendments, a larger number of Australian taxpayers will enjoy a reduction in their income tax, leading to higher take-home pay from July. However, some individuals might find these changes less beneficial than the original tax cut plan.
What’s Changing – Key Amendments Explained
The revised tax cuts redistribute the reforms to benefit lower-income households disproportionately impacted by cost of living pressures.
Under the revised tax plan, Australian residents earning less than $146,486 will see a greater tax reduction than originally planned in Stage 3. For instance:
- Someone earning $40,000 will now get a $654 tax cut, a change from the previous plan where they wouldn’t receive any cut (although they may have benefited from earlier stages).
- Similarly, an individual with a $100,000 income will now enjoy a $2,179 tax cut, which is $804 more than what the initial Stage 3 plan offered.
| Tax Rate | 2023-2024 | 2024-2025 Legislated | 2024-2025 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 |
For High-Income Earners
In the amended Stage 3 tax plan, individuals earning $200,000 will see their tax cut reduced to about half, dropping from $9,075 to $4,529. This is still a saving compared to current rates, though not as substantial as initially planned.
Medicare Levy Changes
Additionally, the Medicare Levy threshold for low-income earners is set to rise by 7.1% due to inflation, meaning the 2% levy will now apply only to incomes over $32,500, up from $26,000.
Despite these changes aiming to balance the budget, the redesign is projected to incur an extra cost of around $1 billion over four years, until bracket creep begins to reduce these gains.
| Tax Rate | Stage 1 | Stage 2 | Stage 3 Legislated | Stage 3 Redesigned |
| 0% | $0-$18,200 | $0-$18,200 | $0-$18,200 | $0-$18,200 |
| 16% | – | – | – | $18,201-$45,000 |
| 19% | $18,201-$37,000 | $18,201-$45,000 | $18,201-$45,000 | – |
| 30% | – | – | $45,001-$200,000 | $45,001-$135,000 |
| 32.5% | $37,001-$90,000 | $45,001-$120,000 | – | – |
| 37% | $90,001-$180,000 | $120,001-$180,000 | – | $135,001-$190,000 |
| 45% | $180,001 and over | $180,001 and over | $200,001 and over | $190,001 and over |
The Road Ahead
To actualize the revised Stage 3 tax cuts by 1 July 2024, the Australian Government needs to swiftly pass new legislation. This process requires gaining support from independent and minor party members in Parliament to ensure the successful passage of the amendments.
The Background to Tax Reform
The journey to the current tax plan began with its announcement in the 2018-19 Federal Budget, aiming to tackle ‘bracket creep’ – the issue of tax rates not keeping up with wage increases, leading to higher taxes over time. The plan’s objective was to simplify personal income tax rates and thresholds, thereby reducing the tax burden for many Australians and aligning the country’s tax structure more closely with that of comparable nations, such as New Zealand.
This plan has been unfolding in stages, with changes implemented incrementally since July 2018 and the final stage set for implementation in July 2024.
Questions or Concerns?
If you have any concerns about how these changes might affect you, Solomons Accountants & Advisers is here to assist, contact us and let us run through these changes with you.
