Stage 3 Tax Cuts 2024; Maximize your Financial Well-being

Stage 3 tax cuts 2024 are set to be implemented. They are a part of a broader tax reform initiative in Australia. These cuts were legislated in 2019. This legislation was part of a three-stage tax plan. It was designed to provide immediate relief for low and middle-income earners.

Let’s get to understand in detail.  

Stage 3 tax cuts 2024

Currently stage 3 tax cuts consist of 4 brackets. They will be applicable till 30^th June 2024. The first $18,200 of the annual income is not taxable. This is known as the tax-free threshold. Following is the comprehensive representation of the current stage 3 tax cuts for the year 2023-2024.

• 0% Tax Rate: Income up to $18,200 is tax-free.
• 19% Tax Rate: Income between $18,201 and $45,000 is taxed at 19%.
• 32.5% Tax Rate: Income between $45,001 and $120,000 is taxed at 32.5% (up to $120,000) and 37% (up to $180,000).
• 37% Tax Rate: Income between $120,001 and $180,000 is taxed at 37%.
• 45% Tax Rate: Income above $180,000 is taxed at 45%.

According to these tax rates, following is the tax payable on these income brackets.

• For the income between $18,201 and $45,000, you pay 19c per dollar over $18,200.
• Between $45,001 and $120,000 of income, you pay $5,092 plus 32.5c per dollar over $45,000.
• For income between $120,000 and $180,000, you pay $29,467 plus 37c per dollar over $120,000.
• If you earn more than $180,000, you pay $51,667 plus 45c per dollar over $180,000.

The rates for the upcoming tax year 2024-2025 have been revised. The changes will be in effect from 1 July 2024. The following are the changes.

Rates for the Upcoming Tax Year 2024-2025

• 0% Tax Rate: Income up to $18,200 will remain tax-free, continuing the existing tax-free threshold.
• 16% Tax Rate: Tax cut on income between $18,201 and $45,000 will reduce to 16%.
• 30% Tax Rate: Tax cut on income between $45,001 and $135,000 will be reduced to 30%.
• 37% Tax Rate: Threshold for 37% tax rate will increase to $135,000.
• 45% Tax Rate: Threshold for 45% tax rate will increase to $190,000.

For the revised stage 3 tax cuts 2024, tax payable on the aforementioned income brackets is as follows:

• For the income between $18,201 and $45,000, you pay 16c per dollar over $18,200.
• Between $45,001 and $135,000 of income, you pay $4,288 plus 30c per dollar over $45,000.
• For income between $135,000 and $190,000, you pay $31,288 plus 37c per dollar over $135,000.
• If you earn more than $190,000, you pay $51,638 plus 45c per dollar over $190,000.

How to Determine Your Income Tax with Stage 3 Tax Cuts 2024

Calculating income tax involves several steps. But first, determine your total income for the tax year. This includes income from all sources. For example, wages, salaries, rentals etc.

Now Calculate your Tax Due

Familiarize yourself with the tax brackets and rates applicable to your taxable income. In the previous section, you have a detailed guide of tax brackets and rates applicable to your income range. Apply these rates to calculate your due tax.

To determine the taxable income, subtract the allowable deductions or exemptions from the accessible income. This may include certain business expenses, medical expenses etc.

Assessable Income – Allowed Deduction = Taxable Income

Now, apply tax rates. This equals the gross tax payable.

Subtract the tax offset from the calculated amount. This equals the net tax payable. Add medical levy and minus tax credits and refundable offsets. This equals the amount of tax you owe. 

Let’s understand it better with an example.

Assume your Assessable Income (Gross Income): $80,000

• Allowed Deductions (e.g., work-related expenses, medical expenses): $10,000
• Tax Offset: $1,000
• Medical Levy: 2% of taxable income

2. Calculate Taxable Income
   • Assessable Income – Allowed Deductions = Taxable Income
   • $80,000 – $10,000 = $70,000
3. Apply Tax Rates
   • Tax rates under Stage 3 tax cuts 2024 is 30% for income between $45,001 and $135,000
4. Calculate Gross Tax Payable
   • Taxable Income within the second bracket: $70,000 – $45,000 = $25,000
   • Tax payable at 30% for this bracket: $25,000 x 30% = $7,500
5. Subtract Tax Offset
   • Subtract the tax offset from the gross tax payable:
     • $7,500 – $1,000 = $6,500
6. Calculate Medical Levy
   • Medical Levy: 2% of taxable income
   • Medical Levy = 2% x $70,000 = $1,400
7. Calculate Net Tax Payable
   • Net Tax Payable = Gross Tax Payable + Medical Levy – Tax Offset
   • $6,500 + $1,400 – $1,000 = $6,900

Impact of Stage 3 Tax Cuts 2024 on Australian Workers

Stage 3 tax cuts 2023 will have a significant impact on Australian workers across several income levels. This includes influencing their take-home pay, disposable income, and overall, financial well-being. Following are the potential benefits:

1.      Increased Disposable Income

Reduced marginal tax rates have led to increased disposable income. Workers can now retain more of their income. They will have more funds available for spending, saving, or investing.

2.      Incentive for Workforce Participation

Lower marginal tax rates can act as an incentive for individuals to participate more in the workforce. This can contribute to increased labor force participation, productivity, and growth.

3.      Potential for Economic Growth

Stage 3 tax cuts 2024 have increased disposable income and incentivized workforce participation. This has paved the way for economic growth. This growth can translate into more job opportunities and wage increases for Australian workers.

The Stage 3 tax cuts of 2024 in Australia offer several benefits to individuals, businesses, and the economy as a whole. Here are some of the key advantages:

4.      Support for Small Businesses

Many small business owners report their business income on their personal tax returns. Lower personal tax rates can translate to lower tax liabilities for small business owners. This allows them to reinvest more profits into their businesses or expand operations.

Suggested Read: How to Deal with Inflation as a Small Business – Tax Guide

5.      Competitiveness and Attraction of Talent

Lower personal income tax rates can make Australia more competitive globally. Stage 3 tax cuts 2024 can help attract skilled workers and investors worldwide. This can help retain talent within the country and attract foreign investments. Thus, bolstering the economy in long run.

Bottomline

The Stage 3 tax cuts 2024 are designed to provide immediate relief for low and middle-income earners. These cuts aim to stimulate economic growth and incentivize workforce participation. Reducing marginal tax rates and increasing disposable income, offers various benefits to individuals, businesses, and the broader economy.

So, make the most out of the revised policies and enhance your financial well-being.

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