Everything You Need to Know about Australian Tax Brackets 2024

Everything You Need to Know About Australian Tax Brackets 2024

Are you confused about how much tax you owe?

Income tax is a system where the Australian government collects a portion of your earnings to fund public services like roads, schools, and hospitals. 

The amount you pay depends on how much you make – the higher your income, the more tax you contribute. This concept is known as a progressive tax system. 

So let’s dive in and understand the details of Australian tax brackets for the current financial year (2023-24) and study the upcoming changes coming into effect on July 1, 2024.

Tax Brackets (2023-24)

Tax brackets categorise your income level and determine the tax rate you pay. 

Here’s a table of the current tax brackets:

Taxable Income Tax on this Income Tax Rate
$0 – $18,200 Nil 0%
$18,201 – $45,000 19 cents for each $1 over $18,200 19%
$45,001 – $120,000 $5,092 plus 32.5 cents for each $1 over $45,000 32%
$120,001 – $180,000 $29,467 plus 37 cents for each $1 over $120,000 37%
$180,001 and over $51,667 plus 45 cents for each $1 over $180,000 45%

How Tax Brackets Are Determined?

Tax brackets are set by the Federal Government based on annual revenue. Greg Mawer FCPA explains that these brackets are adjusted to maintain a tax wedge of around 26-29%. The goal is to prevent bracket creep, where inflation and wage growth push taxpayers into higher brackets.

How Tax Brackets Work and Why They Change?

The government sets the tax brackets each year, considering factors like inflation and average wage growth. Here’s the reasoning behind it:

  • Bracket Creep: Over time, with inflation and rising wages, people tend to earn more even without a promotion. If the brackets remained fixed, people would move into higher tax brackets even with the same purchasing power, effectively increasing their tax burden. Adjusting the brackets helps prevent this.

Stage Three Tax Cuts - A Revamp for 2024-25

Originally proposed by the Morrison government, stage three tax cuts were adjusted by the Albanese Government to benefit lower and middle-income earners. 

The Australian tax system is undergoing significant changes with the implementation of the revised Stage Three Tax Cuts from July 1, 2024. 

Let’s see how these changes affect the tax brackets:

Old vs. New Tax Brackets (A Table for Clarity)

Taxable Income (Old) Tax Rate (Old) Taxable Income (New) Tax Rate (New)
$0 – $18,200 0% $0 – $18,200 0%
$18,201 – $45,000 19% $18,201 – $45,000 16%
$45,001 – $120,000 32.5% $45,001 – $135,000 30%
$120,001 – $180,000 37% $135,001 – $190,000 37%
$180,001 and over 45% $190,000 and over 45%

Key Changes

  • The bottom tax bracket rate decreases from 19% to 16%: This benefits low- and middle-income earners by reducing the tax they pay on a portion of their income.

Overall Impact

The revised Stage Three Tax Cuts aim to provide tax relief primarily for low- and middle-income earners. By lowering the tax rate on the first income bracket and raising the threshold for the higher brackets, the government intends to put more money back into the pockets of those who need it most.

What Does This Means for You?

The impact of these changes depends on your income level. Here’s a general idea:

  • Low and Middle Earners (Under $135,000): You’ll likely benefit the most from the tax cuts. The lower tax rate for the first two brackets and the increased threshold for the 37% bracket could translate to tax savings.
  • High Earners (Over $135,000): The impact on your tax bill may be less significant. You’ll still pay the 37% tax rate, but the benefit might come from the slightly higher threshold before entering the top tax bracket.

Remember: This is a simplified overview. Several factors can influence your actual tax liability, such as:

  • Deductions: Expenses you can claim against your income to reduce your taxable amount.
  • Other Income Sources: Investments, rental income, etc., may affect your tax bracket.
  • Medicare Levy: A 2% levy on most taxpayers to help fund Australia’s healthcare system. This is added to your income tax.

Confused About Taxable Income? Let Us Help You!

Understanding tax brackets and the upcoming changes can help you plan your finances better. The revised Stage Three Tax Cuts prioritise providing tax relief for low and middle-income earners. 

If you are confused about which income slab you come under or you are looking to explore opportunities to minimise your tax burden, you can connect with KPG Taxation. Their professional tax agents will help you get personalised guidance and ensure you get the correct advice to minimise your taxation burden. 

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