Revised stage 3 tax cuts now law
With the revised stage 3 tax cuts now law, now is a good time to understand how these changes will affect you and how to plan your taxes for the future more effectively. Depending on how much you earn, these revised tax cuts will save you between $26 and $71 per week. Similar changes will also apply to foreign residents and working holiday makers.
Now that the revised stage 3 tax cuts have passed all stages of Parliament and received Royal Assent, the new rates will apply from 1 July 2024. While this means the revised rates won’t apply for the current financial year, it’s prudent to understand the changes to be able to plan for the future more effectively. Depending on an individual’s annual income, the changes will affect them differently.
This article will look at how the revised income tax rates will affect individuals who earn:
- $67,600, which is the median income extrapolated from the latest Australian Bureau of Statistics (ABS) data;
- $98,176, which is the average income extrapolated from the latest average weekly ordinary time earnings (AWOTE) data; and
- $180,000.
For the 2023–2024 income year (that is, the current year), an individual who earns $67,600 will be expected to pay around $12,437 in income tax. With the new tax rates coming in for the 2024–2025 income year, assuming the individual earns the same amount, they will be paying $11,068 in income tax – a tax saving of around $1,369 for the year, or around $26 per week.
An individual who earns $98,176 annually will have an income tax bill of around $22,374 for the 2023–2024 income year. However, this will drop to $20,240 when the new rates come into force for the 2024–2025 year, leading to a tax saving of around $2,133 for the year, or $41 per week.
Similarly, an individual who earns $180,000 will expect to see a tax saving of $3,729 for the year, or $71 per week; they will pay income tax of $51,667 for 2023–2024 versus $47,938 in 2024–2025.
These revised tax cut changes will also flow through to the income tax rates for foreign residents and working holiday makers.
For foreign residents, the changes are as follows:
| 2023-2024 | 2024-2025 | ||
| Income band | Income tax | Income band | Income tax |
| $0 to $120,000 | 32.5% | $0 to $135,000 | 30% |
| $120,001 to $180,000 | $39,000 + 37% of excess over $120,000 | $135,000 to $190,000 | $40,500 + 37% of excess over $135,000 |
| $180,001+ | $61,200 + 45% of excess over $180,000 | $190,001+ | $60,850 + 45% of excess over $190,000 |
For working holiday makers, the changes are as follows.
| 2023-24 | 2024-25 | ||
| Income band | Income tax | Income band | Income tax |
| $0 to $45,000 | 15% | $0 to $45,000 | 15% |
| $45,001 to $120,000 | $6,750 + 32.5% of excess over $45,000 | $45,001 to $135,000 | $6,750 + 30% of excess over $45,000 |
| $120,001 to $180,000 | $31,125 + 37% of excess over $120,000 | $135,001 to $190,000 | $33,750 + 37% of excess over $135,000 |
| $180,001+ | $53,325 + 45% of excess of $180,000 | $190,001+ | $54,100 + 45% of excess of $190,000 |
It should be remembered these revised tax cuts were introduced as a cost-of-living relief measure by the government to put more money back in the pockets of Australian workers so they can deal with recent skyrocketing inflation. However, by giving a proportional tax cut to working holiday makers and foreign residents the government is banking on more spending from that segment which will boost the economy overall.
To provide further help to lower income earners, and in association with the revised income tax cuts, the government has also lifted low-income Medicare levy thresholds for eligible singles, families, seniors and pensioners to apply for the 2023–2024 income year (the current income year) meaning more low-income earners can avoid paying the Medicare levy of 2% on top of their tax, or will pay a reduced amount of levy.
Source: www.pm.gov.au/media/albanese-governments-cost-living-tax-cuts-roll-out-july-1
Parliament of Australia - Treasury Laws Amendment (Cost of Living Tax Cuts) Bill 2024