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Your Guide To Australian Tax Brackets 2024-25

Your Guide To Australian Tax Brackets 2024 25

Have you heard that almost 90% of Australian taxpayers can expect a cut in their taxes with the approval of the Stage 3 tax cuts?

As we approach the 2024-25 fiscal year, one cannot stress enough how vital it is to understand these broad changes to the tax system for the purposes of financial planning.

Let’s have a quick look at the various Australian tax brackets, offsets, deductions, and so forth.

What Are Tax Brackets?

Australia has a progressive tax system, meaning that the higher your income, the higher the tax rate. However, you only pay the higher rate on that portion of your income that falls within that tax bracket. This ensures fairness, that all enjoy the benefit of paying lower income tax rates on the first income portions.

New Tax Brackets For 2024-25

From 1 July 2024, the Australian government has introduced significant changes to income tax brackets.

Here’s a snapshot of the new rates:

Income thresholds Tax rate Tax payable on this income
$0 – $18,200 0% Nil
$18,201 – $45,000 16% 16c for each $1 over $18,200
$45,001 – $135,000 30% $4,288 plus 30c for each $1 over $45,000
$135,001 – $190,000 37% $31,288 plus 37c for each $1 over $135,000
$190,001 and over 45% $51,638 plus 45c for each $1 over $190,000

Key Changes In The 2024-25 Tax Reform

The tax reforms have introduced several significant changes:

Key changes include:

  • A reduction in the bottom tax rate from 19% to 16%.
  • The 32.5% tax rate decreases to 30%.
  • The threshold for the 37% tax rate rises from $120,000 to $135,000.
  • The threshold for the 45% tax rate increases from $180,000 to $190,000.

Understanding Taxable Income

Your taxable income forms the foundation of your tax assessment. It encompasses various income sources:

Employment income includes your salary, wages, commissions, and bonuses. Investment returns from shares, property rentals, and interest earnings contribute to your taxable income. Government payments, including pensions and benefits, must be declared. Business income, whether from sole trading or partnerships, forms part of your assessable income.

What Is The Tax-Free Threshold?

The tax-free threshold is the income you can earn before you’re liable to pay any tax. For Australian residents, this threshold remains at $18,200. Income above this amount is taxed progressively based on the tax brackets.

Tax Offsets And Deductions

Tax Offsets

Tax offsets directly reduce the amount of tax you owe. Some common offsets include:

  • Low Income Tax Offset (LITO): A maximum of $700 for incomes below $37,500, gradually reducing to nil for incomes above $66,667.
  • Seniors and Pensioners Tax Offset (SAPTO): Provides relief for eligible seniors and pensioners, potentially eliminating their tax liability.

Tax Deductions

Deductions lower your taxable income, reducing the tax you owe. Common deductions include:

  • Work-related expenses: Vehicle and travel, uniforms, home office costs, and tools.
  • Investment-related costs: Interest, bank fees, and management fees for earning assessable income.
  • Charitable donations: Contributions to registered charities.
  • Super contributions: Personal contributions up to $30,000 from 1 July 2024.

Types Of Assessable Income

Your assessable income is the basis for your tax calculation. This includes:

  1. Employment income: Salary, wages, bonuses, and allowances.
  2. Super pensions and annuities: Taxable components of super withdrawals.
  3. Government payments: Such as pensions and carer payments.
  4. Investment income: Interest, dividends, and rental income.
  5. Business income: Sole trader or partnership profits.
  6. Foreign income: Earnings from overseas sources.
  7. Crowdfunding income: If part of a business or profit-making venture.

Medicare Levy And Surcharge

The Medicare Levy remains at 2% of taxable income for most Australians. However, the Medicare Levy Surcharge applies to higher-income earners without adequate private health insurance, ranging from 1% to 1.5% based on income thresholds.

Tax Offsets And Benefits

The Low Income Tax Offset continues to assist lower-income individuals by providing an amount of up to $700 to those confronting a threshold of income less than $37,500. It phases out gradually with increasing income, eking out completely to $66,667.

Superannuation Considerations

The concessional contributions cap will be increased to $30,000 for the financial year 2024-25. Contributions accepted under that cap will be taxed at 15 percent within your superannuation fund, thereby offering you a huge tax advantage against your marginal tax bracket.

Record-Keeping Requirements

It is more important than ever to keep comprehensive records of income and deductions. The ATO requires you to back up any claim with substantiating documents, to be stored on hand for five years from the day you lodge your tax return.

Private Health Insurance Implications

The private health insurance rebate is continuously subjected to an income test with different thresholds indicating varying levels of government support. 2% lifetime health cover loading applies per annum to individuals who have not obtained private hospital cover by 30 years of age.

Simplify Your Taxes With Expert Help

Understanding tax brackets can feel overwhelming, but you don’t have to navigate it alone. At KPG Taxation, our personal tax accountants specialise in simplifying tax matters and ensuring you get the best outcomes for your finances.

Consulting with KPG Taxation

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