How the Stage 3 Tax Cuts Impact You
In a bid to address economic challenges and provide relief to low and middle-income taxpayers, the Australian government has recently unveiled significant adjustments to the stage 3 tax cuts package. Initiated several years ago by the former Liberal government, these changes aim to create a fairer tax system, aligning with the current economic climate.
Broadened Benefits: Australians earning less than $150,000 will welcome positive adjustments to their tax rate. Notably, those earning less than $45,000, previously left out under the previous legislation, are now in line to receive a tax cut. Individuals falling within the $50,000 to $130,000 income bracket will experience the most significant benefits.
What does the income tax system look like now? The first $18,200 of annual earnings is not taxable (the so-called tax-free threshold). Then there are four tax brackets: individuals pay tax at 19% on earnings between $18,201 and $45,000, 32.5 per cent for earnings between $45,001 and $120,000, 37 per cent for earnings between $120,001 and $180,000, and 45 per cent for every dollar earned over that.
What were the stage 3 cuts? From July 1 2024, the 37 per cent marginal tax rate was to be abolished for those earning more than $120,000 a year, and the 32.5 per cent tax rate was to be reduced to 30 per cent for people earning between $45,000 and $200,000. This would have meant that there would be a single 30% tax bracket for everyone earning between $45,000 and $200,000. For earnings above $200,000, the current 45% tax rate would be retained.
What are the proposed changes? The Prime Minister, Anthony Albanese, has unveiled the new Stage 3 tax cuts in a speech to the National Press Club this afternoon. Key features include:
- A cut in the 19% tax rate to 16%, saving $804 for those on taxable incomes of $45,000
- A cut in the 32.5% rate to 30% for incomes between $45,000 and $135,000
- Retaining the 37 per cent rate but increasing the threshold for it to apply to $135,000.
- Retaining the current 45% tax rate but increasing the threshold to $190,000 ($10,000 less than in the original design)
The effect of the redesigned package is that those on higher incomes (say, $200,000) will now only benefit by $4,546 as opposed to $9,075.
CLICK HERE to see the breakdown of the Stage 3 tax cuts and how you are impacted.