How much will the Stage 3 tax cuts save you?
By Thomas Kidd
Stage 3 tax cuts are due to come into effect from July 1st 2024. These tax cuts were originally scheduled under the Morrison government, with the following changes to be made:
32.5% tax bracket to be reduced to 30%
Removal of the 37% tax bracket
Raising the threshold for the 45% tax bracket from $180,000 to $200,000
However the proposal has since been altered by the Albanese government to the following:
19% tax bracket to be reduced to 16%
32.5% tax bracket to be reduced to 30%
Raising the threshold for the 37% tax bracket from $120,000 to $135,000
Raising the threshold for the 45% tax bracket from $180,000 to $190,000
Both proposals would provide tax relief to millions of Australians, but how much tax you might save differs between the two plans. The chart below demonstrates the amount of tax an individual would save under each proposal.
The chart demonstrates that under the new proposal, a higher level of tax relief applies to incomes below $146,500, and a lower level of tax relief for incomes above that threshold. The new proposal also provides some tax relief for incomes below $45,000, where the former proposal did not. Both proposals level out for incomes above $200,000 with a maximum tax saving of $9,075 under the former plan and $4,529 under the new plan.
The Treasury has provided a calculator for estimating how much tax you will save, which you can access here:
https://treasury.gov.au/tax-cuts/calculator
How these changes affect your financial plan
For many people, the changes to tax rates will result in some additional cashflow which can be used to fund savings and investment goals, or may simply be used for some additional discretionary spending. Some people using super contributions or salary sacrifice to reduce their tax liabilities may find that the effective amounts have changed, or will be able to increase their contributions to save even more tax.
Everyone’s circumstances are unique, so if you want to know how these changes might affect you, get in touch with one of our advisers today.
Thomas Kidd in an authorised representative of Alliance Wealth Pty Ltd. (AR: 001292328)