Did you know that from 1 July 2024, millions of Australian workers started seeing more money in their pay each week?
The revised Stage 3 tax cuts, rolled out by the government, have reshaped how tax is withheld from your income.
Designed to ease cost-of-living pressures, these changes particularly benefit low and middle-income earners across Australia.
Whether you’re wondering how much extra cash you’ll take home or who qualifies for these savings, this blog breaks it all down.
Our experienced tax consultants have the details you need to understand what’s changed and how it affects you.
What Are The Stage 3 Tax Cuts?
The Stage 3 tax cuts, sometimes called ‘cost of living tax cuts’, came into effect on July 1, 2024.
Unlike the original plan announced in 2018, the revised tax cuts have been adjusted to provide more relief to low and middle-income earners rather than focusing primarily on high-income Australians.
These changes were designed in response to economic shifts that weren’t anticipated when the original cuts were planned – including the pandemic, inflation, interest rate rises, and increasing cost-of-living pressures felt across Australia.
Importantly, these changes don’t impact your 2023-24 tax return – they only apply to the 2024-25 financial year and beyond.
Here’s what’s different: the government lowered the 19% tax rate to 16% for incomes between $18,201 and $45,000. For those earning between $45,001 and $135,000, the tax rate drops from 32.5% to 30%.
The 37% tax bracket, which was set to be scrapped in the original plan, remains but now applies to incomes from $135,001 to $190,000.
Meanwhile, the top 45% tax rate comes in at $190,001 instead of $180,000. These tweaks mean most workers pay less tax on their income.
Who Benefits From These Changes?
Almost every Australian worker earning above $18,200 stands to gain.
The biggest winners are those in the lower and middle-income brackets because the tax rate reductions are more significant there.
High earners, while still taxed at 45% on income over $190,000, benefit from lower rates on the portions of their income that fall into the adjusted brackets.
Whether you’re a full-time employee, part-time worker, or self-employed, the changes apply as long as you’re paying income tax.
For clarity, let’s look at the tax rates side by side:
| Income Range | 2023-24 Tax Rate | 2024-25 Tax Rate |
|---|---|---|
| $0 – $18,200 | 0% | 0% |
| $18,201 – $45,000 | 19% | 16% |
| $45,001 – $120,000 | 32.5% | 30% (up to $135,000) |
| $120,001 – $135,000 | 37% | 30% |
| $135,001 – $180,000 | 37% | 37% (up to $190,000) |
| $180,001 – $190,000 | 45% | 37% |
| $190,001 and above | 45% | 45% |
This table shows how the thresholds and rates have shifted, giving you a clear picture of where you fit.
How Much More Will You Take Home?
The revised tax cuts increase your weekly take-home pay by reducing the tax withheld from your salary.
For someone earning the median weekly salary of $1,300, the tax withheld drops from $265.17 to $238.85 in 2024-25.
That’s an extra $26.32 per week – or roughly $110 more per month. The amount varies depending on your income, but the pattern is consistent: lower tax rates mean more money stays with you.
To find out your exact savings, you can use the Treasury’s online calculator at treasury.gov.au. Simply enter your annual income, and it will show your new tax liability.
Alternatively, tax agents in Melbourne like us can help you calculate this precisely, ensuring you understand your position.
Why Did The Government Make These Changes?
The original Stage 3 tax cuts, put in place years ago, did not factor in significant and substantial economic factors such as inflation and rising interest rates, which have occurred in the interim period.
With the pressures of cost-of-living hitting hard, the federal government decided to rework the Stage 3 tax cuts in order to deliver tax relief to a broader base of individuals.
By targeting low and middle-income earners, the new tax policy aims to ensure that those individuals most in need will continue to have cash in their pockets and their goods and services tax back to them.
Accountants in Melbourne have observed that the new tax policy maintains some fairness in the tax system through the practice of putting downward pressure on benefits in order to redirect tax relief to individuals with lower incomes.
High-income earners will receive a lower amount of tax relief than would have been received under the original Stage 3 compensation, allowing additional or “new” tax relief for those individuals earning less than $135,000.
The Federal budget articulates how the change in tax structure will maintain sustainability.
How To Shift Income And Deductions?
Bringing deductions into 2023-24 or pushing income into 2024-25 can boost your savings.
Options include:
- Rental Properties: Schedule repairs before 30 June 2024 to claim deductions at the higher 2023-24 rates.
- Donations: Make charitable gifts before year-end to reduce your taxable income now.
- Superannuation: Contribute after-tax amounts, mindful of caps and extra taxes for high earners.
- Small Businesses: Stock up on supplies or write off bad debts before 30 June 2024.
Be cautious, though – tax laws have anti-avoidance rules. Always consult accountants in Melbourne to stay compliant.
Want To Maximise Your Stage 3 Tax Cut Benefits?
Are you unsure of the impact of the Stage 3 tax cuts on your pay or how to maximise these benefits? KPG Taxation has experienced tax consultants who can assist you in understanding your tax cut savings and maximising your tax claim. We provide services Australia wide with fast turnaround times and maximum tax refund guarantees!
