You may have heard about the Stage 3 tax cuts on the news in the past couple of months, as they have recently been legislated and will come into effect for the 2024 financial year. But what are the stage 3 tax cuts and what do they mean for Australian’s filing their tax returns at the end of 2023 financial year. In this blog we are going to go through the changes and how they will affect people on different income brackets. However, of you have any questions, you can get in contact with an accounting consultant in Bentleigh at Centre of Wealth.
What is the Stage 3 tax cuts?
The stage 3 tax cuts are a series of changes to individual income tax rates that will come into effect at the start of the 2024/25 financial year. The original stage 3 tax cuts were legislated by the previous federal Liberal government several years ago and were set to come into effect from the 2024/25 financial year. However, changes were implemented by the federal Labor government in early 2024 to restructure some of the tax cuts to lower- and middle-income earners. This move aimed to financially assist those who have proportionately been more affected by rising inflation, cost of living pressures, and provide a tax cut to a larger percentage of the population.
Will my 2023/2024 tax return be affected by these changes?
Something important to clarify is these changes will not impact your 2023/24 tax return (the one due from July 2024), as the tax cuts have not been retroactively introduced for 2023/24. Therefore, you won’t receive a larger tax refund this financial year.
However, from the start of the new financial year, beginning in the week of July 1st 2024, you will receive a greater percentage of your take home pay as the changes come into effect. Alternatively, if you don’t have a PAYG system set up for your employment, it means a greater tax refund or less tax paid in total for the 2024/25 financial year than the 2023/24 financial year – in a scenario where you earn the same income across both years.
What are the current tax brackets?
What are the changes to the tax brackets?
Key changes:
– the 19% tax threshold has been reduced to 16%
– the 32.5% threshold has been reduced to 30%
– the top bracket of 30% threshold has increased from $120,000 per annum to $135,000
– the brackets of the 37% threshold has increased to 135,001-$190,000
– the top tax bracket of 45% has increased from >$180,000 to >$190,000
What were the original stage 3 tax cut changes?
As mentioned, the original Stage 3 tax cuts were legislated years ago under the former federal Liberal government. In the original form, they looked different to the final version set to come into effect in the 2024-25 financial year. Under the original legislation, people earning under $45,000 did not receive a tax cut.
Key changes:
- The 32.5% threshold has been reduced to 30%
- 37% tax bracket removed.
- The top tax bracket of 45% has increased from >$180,000 to >$200,000.
| Thresholds in 2024-25 (old) | Rates in 2024-25(%) (old) |
| 0-18,200 | Tax free |
| 18,201 – 45,000 | 19% |
| 45,001 – 200,000 | 30% |
| 200,001+ | 45% |
How will the stage 3 tax cuts affect workers:
According to ABS Data, the median full-time Australian worker earned an average income of 1600 per week in 2023, totalling $83,200 per year. This figure does not account for wage growth in the 2023-24 financial year as those figures have not been released yet.
Under 2023-24 settings, the estimated tax liability of an individual on this income is $19,171. Meanwhile, with the new stage 3 tax cuts, the liability reduces to $17,412. This provides an annual tax cut of $1759, or an extra $33.83 getting taken home each week in a paycheck.
What does this mean for me?
As an individual, there isn’t much you will need to do to receive the tax cuts, as the money simply won’t be deducted from PAYG during your paycheck. If you have any questions or believe this will otherwise affect your tax strategies moving forward, feel free to speak to an accounting consultant in Bentleigh and member of our team at Centre of Wealth.
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