In recent years, the Australian government has implemented significant tax reforms aimed at providing cost of living relief to taxpayers. Most notable are the stage 3 tax cuts, which come into effect on 1 July 2024. These changes will amend personal income tax rates and thresholds, offering tax relief for all income earners. The key change in the upcoming tax cuts is the replacement of marginal tax rates for taxable income from $45,000 to $200,000 with a flat 30% marginal tax rate.
The upcoming tax changes may be an opportunity for you to optimise your financial strategies. By understanding the revised tax rates and thresholds, you can make decisions regarding superannuation contributions, debt repayment, and income deferral. This provides a timely juncture to review your financial plan. Get in touch with your adviser about the best solution for your individual circumstances to ensure you maximise potential benefits of these tax savings.
Changes for Australian tax residents
The new stage 3 tax cuts will bring about several changes to tax rates and thresholds in the 2024/25 financial year compared to 2023/24. These changes include:
• Reducing the current 19% tax rate to 16%
• Reducing the current 32.5% tax rate to 30%
• Increasing the threshold above which the 37% tax rate applies from $120,000 to $135,000
• Increasing the threshold above which the 45% tax rate applies from $180,000 to $190,000
*There is no change to the Medicare levy, currently set at 2%.
How can you utilise the change
Now you understand the changes, here are some ways you can utilise the changes for your benefit:
Extra disposable income in future years: With the upcoming tax cuts, individuals with taxable income lower than approximately $146,500 will receive a higher tax cut. This means that more people will have extra disposable income from 2024/25. It may be a good time to consider contributing more to superannuation or paying down non-deductible debt, such as a home loan.
Reviewing salary sacrifice or personal deductible contributions strategies: The reduction in the lowest tax rate from 19% to 16% will impact the effectiveness of salary sacrifice or personal deductible contributions strategies for individuals with lower taxable income. It's crucial to review existing strategies to ensure that taxable income is not reduced below the increased effective tax-free threshold. Additionally, individuals with taxable income between their effective tax-free threshold and $45,000 will only save up to 3% tax by utilising these strategies, compared to the current 6% tax saving.
Deferring income to a future financial year: The reduction in lower tax rates and increases in tax thresholds make it beneficial to delay certain events that can result in higher taxable income. By postponing retirement, deferring a capital gains tax event, or delaying a First Home Super Saver (FHSS) scheme release, individuals can take advantage of lower tax liabilities in future financial years.
General Advice Warning: The information provided in this article is general in nature and does not consider your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
Dobbrick Financial Services (Gympie) Pty Ltd ABN 48 931 205 109 & DFS Oakland ABN 64 340 527 395 and their advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. DFS (Ipswich) Pty Ltd ABN 86 100 184 521 and their advisers are authorised representatives of Fortnum Private Wealth LTD ABN 54139889535 AFSL 357306.
