Changes to Stage 3 Tax Cuts
The Federal Government has unveiled a proposal to reshape the scheduled Stage 3 personal income tax cuts, set to commence on 1 July 2024. This decision comes after extensive speculation, with the government aiming to reallocate and extend the benefits of these tax cuts to a larger segment of the Australian population.
What are the proposed changes to Stage 3?
Under the revised plan, the reforms will be redirected to favour lower-income households that have been disproportionately affected by rising living costs. The key changes include providing larger tax cuts to resident taxpayers with taxable income under $146,486, compared to the existing Stage 3 plan.
Some examples of these proposed changes are included in the following table:
| Taxable Income | Original Stage 3 | Revised Stage 3 | Impact of Change |
|---|---|---|---|
| $40,000 | Nil Tax Savings | $654 Tax Savings | $654 more in your pocket |
| $100,000 | $1,375 Tax Savings | $2,179 Tax Savings | $854 more in your pocket |
| $200,000 | $9,075 Tax Savings | $4,529 Tax Savings | $4,546 less in your pocket |
Additionally, low-income earners will find relief with the Medicare Levy low-income thresholds projected to rise by 7.1%, in line with recent inflation. It is anticipated that individuals will effectively not be subject to the 2% Medicare Levy until their income reaches $32,500, up from $26,000.
What needs to happen for these proposed changes to proceed?
While the proposed redesign aims to maintain broad revenue neutrality compared to the existing budgeted Stage 3 plan, it is expected to incur approximately $1 billion more in costs over the next four years before bracket creep starts to diminish the budgetary gains.
It is crucial to note that the government must swiftly enact amending legislation to implement the redesigned Stage 3 tax cuts by 1 July 2024. This process requires securing the support of independents or minor parties for parliamentary approval.
The origin of these changes’ dates back to the 2018-19 Federal Budget, where the personal income tax plan aimed to address the issue of bracket creep. The three-stage plan, with incremental changes from 1 July 2018, 1 July 2020, and finally 1 July 2024 was designed to simplify tax thresholds, reduce tax burdens, and align Australia with neighbouring countries, such as New Zealand.
Proposed tax bracket changes under Stage 3
The current, legislated, and redesigned Stage 3 tax rates for Australian resident taxpayers are detailed in the following table
| Tax Rate | 2023-24 (Stage 2) | 2024-25 (Stage 3) Legislated | 2024-25 (Stage 3) 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 | $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 |
If you would like further information about how these proposed personal income tax changes may impact your personal tax position, please contact LINK Advisors and we can assist you.
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