The rising cost of living is biting more and more.
This has been recognised by the Federal Government, so they have released a realigned and redistributed personal tax cut proposal due to come into effect on 1 July 2024.
What does this mean for everyday Australians?
Keep reading to find out what tax cuts are being proposed and how they might impact personal pay packets from the middle of this year.
What’s Going On?
Way back in 2018, the 2018-19 Federal Budget was announced and it contained a plan to address the issue where tax rates not keeping pace with the growth in wages. The solution was a three point plan designed to restructure the personal income tax rates by simplifying the tax thresholds and rates.
At the time, the plan was on point. However, in the five years since the plan was set, no one could have predicted the impact the pandemic, global inflation spike, interest rate rises and greater global uncertainty would have. These developments meant that the initial plan did not quite meet the needs of the current situation any longer. Hence, a redesign of that plan has been actioned by the Government.
The redesign aims to reduce the tax burden that lower income earners face and also brings Australia’s tax brackets in line with its international neighbours, like New Zealand.
Initially, the change to the tax brackets was undertaken incrementally on 1 July 2018 and 1 July 2020, with the last change, Stage 3, legislated to take place on 1 July 2024. This last change will still happen, but the redesign will see it actioned in a modified fashion.
It’s important to note that the proposed redesigned tax cuts are not yet guaranteed. The Government will need to quickly enact a legislation amendment to ensure the redesigned Stage 3 tax cuts are in place before 1 July 2024.
What Is Changing?
Put in plain language, the Government has announced that they are amending the legislated Stage 3 tax cuts scheduled to come into effect on 1 July 2024.
What does that mean?
Tax cuts are still happening! But, the parameters around the rates and brackets will be shifting.
The redesigned plan will still mean that Australian taxpayers receive personal income tax cuts, but they may not be at the same level that was initially proposed. The revised tax cuts have been designed to positively impact lower income households as they have been the ones disproportionately affected by the rising cost of living.
What that means is that resident taxpayers who have a taxable income under $146,486 will receive a larger tax cut in the revised Stage 3 plan. Taxpayers who earn $200,000 or more will still receive a tax cut, just not as much as was initially forecasted.
Let’s Talk Numbers
What will the revised plan actually mean for Australian taxpayers? The table of the current, legislated and redesigned tax rates brings all the info together in one place:
| Tax rate | 2023-24 | 2024-25 legislated | 2024-25 proposed |
|---|---|---|---|
| 0% | $0 – $18,200 | $0 – $18,200 | $0 – $18,200 |
| 16% | $18,201 – $45,000 | ||
| 19% | $18,201 – $45,000 | $18,201 – $45,000 | |
| 30% | $45,001 – $200,000 | $45,001 – $135,000 | |
| 32.5% | $45,001 – $120,000 | ||
| 37% | $120,001 – $180,000 | $135,001 – $190,000 | |
| 45% | >$180,000 | >$200,000 | >$190,000 |
These are the main differences that Australian taxpayers will see with the redesign:
- All 13.6 million taxpayers will receive a tax cut – 2.9 million more Australians than in the initial plan.
- 11.5 million taxpayers (84 per cent of taxpayers) will now receive a bigger tax cut.
- Someone whose average income is $73,000 will get a tax cut of $1,504 – that’s $804 more than they were going to receive previously.
- A person earning $40,000 will get a tax cut of $654 – previously they would not have received a tax cut.
- A person earning $100,000 will get a tax cut of $2,179 – $804 more than initially planned.
- A person earning $200,000 will still get a tax cut, which will be $4,529.
- Additional relief for low income earners via an increased income threshold for Medicare with individuals not required to pay the 2% Medicare Levy until their income reaches $32,500, up from the initial figure of $26,000.
Got Some Questions?
The redesigned plan aims to provide greater tax relief to more resident taxpayers in Australia. The motivation for the change is to help with cost of living pressures in a responsible way, one that doesn’t add to inflationary pressures.
So, if the legislation change gets across the line, every taxpayer will be in line for a tax cut on 1 July 2024. What does that mean for your employees and your business? Well, there will be some work needed to ensure your team is being taxed appropriately.
That’s where Cadenze can help. If you have any questions about how this might impact your business or what you need to do to fall in line with the proposed new legislation, then reach out to our team today.