Federal Government Proposes Redesign of Personal Income Tax Cuts
Today, we bring you significant news regarding the proposed changes to personal income tax cuts in Australia, set to take effect from 1 July 2024. The Federal Government has recently released a proposal to realign and redistribute the legislated Stage 3 tax cuts, impacting taxpayers across the nation.
WHAT’S CHANGING?
In a move aimed at addressing the impact of the cost-of-living pressures, the proposed redesign will benefit lower-income households that have been disproportionately affected.
Individual Tax Rate Changes: The proposed changes in tax rates can be seen in the table below, showing the stages of the tax cuts and the differences between the legislated and redesigned Stage 3 tax rates for the 2024-25 financial year.
| 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 – $200,000 | – | – |
| 37% | $90,001 – $180,000 | $120,000 – $180,000 | – | $135,001 – $190,000 |
| 45% | >$180,001 and over | >$180,001 and over | >$200,001 | $190,001 |
Additional Relief for Low-Income Earners:
There is some relief for low-income earners, with the Medicare Levy low-income thresholds expected to increase by 7.1% in line with inflation. An individual is not expected to start paying the 2% Medicare Levy until their income reaches $32,500, up from $26,000.
WHAT’S THE IMPACT ON YOU?
Redistribution of the tax cuts for Lower Incomes: For individuals with taxable income under $146,486 these revised tax cuts will see them receive a more substantial tax cut compared to the existing Stage 3 plan.
Higher Incomes: Individuals earning $200,000 will experience a reduction in the anticipated benefit of the Stage 3 plan, being cut almost in half from $9,075 to $4,529.
SOME EXAMPLES:
An individual with a taxable income of $40,000: If you have $40,000 of taxable income you now receive a tax cut of $654, compared to no tax cut under the current Stage 3 plan.
An individual with a taxable income of $100,000: Someone with a taxable income of $100,000 will receive a tax cut of $2,179, which is $804 more than the current Stage 3 plan.
Enactment Challenges:
However, these proposed changes are not set in stone. The government needs to enact the amending legislation swiftly to make the redesigned Stage 3 tax cuts a reality by 1 July 2024. This process involves securing the support of independents or minor parties to pass through Parliament.
Background and Concerns:
The personal income tax plan was initially announced in the 2018-19 Federal Budget, aiming to address the issue of ‘bracket creep.’ This phenomenon occurs when tax rates do not keep pace with wage growth, resulting in increased taxes over time.
DO YOU HAVE ANY QUESTIONS?
If you have any concerns or questions about the potential impact of these proposed changes on your tax outcomes, we encourage you to reach out to us. Your financial well-being is our priority, and we are here to provide guidance.
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 29 January 2024.
