03 9726 4650Stage 3 Tax Cuts – The Latest Rundown & What To Expect
Ever heard the saying "every penny counts"? Taxes can feel like a big chunk of your hard-earned money disappearing every payday. That's why tax cuts are a hot topic - they can put more money back in your pocket.
And lately, there's been a lot of talk about the Stage 3 Tax Cuts.
Let's break it down into simpler terms and see how it might affect your finances.
What are the Stage 3 Tax Cuts?
The Stage 3 Tax Cuts were passed by the Morrison government in 2019. Here's the basic idea:
- If you earned between $120,000 and $180,000, you wouldn't have to pay the 37% tax rate anymore. This could mean more money in your pocket.
- The top tax bracket (where you pay the highest rate) would move from $180,000 to $200,000.
- The 32.5% tax rate you pay on income between $45,000 and $120,000 would go down to 30%.
This plan aimed to give everyone a tax break, especially those in the middle-income range (around $97,000) and those earning a bit more (around $136,000).
The Albanese Labor Government’s changes
During the last election, the Labor Party promised to keep these tax cuts, but with some tweaks. They wanted the tax pie to benefit a wider range of people.
So, what are the changes? Here's what's happening starting 1 July 2024:
- People earning between $18,200 and $45,000 get an even smaller slice. Their tax rate goes down from 19% to 16%.
- The middle class gets a break too. Those earning between $45,000 and $135,000 (the new limit) will see their tax rate drop from 32.5% to 30%.
- The 37% tax bracket isn't going away completely. It now applies to people earning between $135,000 and $190,000 (increased limit).
- Top earners still get a break. The 45% tax bracket only kicks in for those earning over $190,000 (increased limit).
The good news? Everyone (all 13.6 million taxpayers) is expected to receive a tax cut. This translates to a bigger payday for most Australians, from those just starting out to those earning higher incomes.
A quick comparison of the old and new tax rates
| Income range | Old tax rate | New tax rate |
|---|---|---|
| Below $18,200 | Tax-Free | Tax-Free |
| $18,201 - $45,000 | 19% | 16% |
| $45,001 - $120,000 | 32.5% | 30% |
| $120,001 - $135,000 | 37 | 30 |
| $135,001 - $190,000 | 45% | 37% |
| Over $190,000 | 45% | 45% |
The bottom line: how much can you save?
Everyone's situation is different, but here's a general idea of what you might get back:
- Around $73,000 income: This could mean an extra $1,504 in your pocket each year.
- Around $40,000 income: You could see a tax cut of around $654.
- Around $100,000 income: This income range might benefit from a tax cut of around $2,179.
- Even higher incomes: Those earning over $200,000 would still get a tax cut, though a bit smaller than originally planned.
Remember, these are just estimates. The exact amount you save from the Stage 3 Tax Cuts will depend on your specific income and tax situation.
Stay informed
Tax policies can be complex, but understanding them can make a big difference. Keep an eye out for updates or consult a tax professional if you have any questions about how these changes might affect you. You can also reach out to us if you need help with tax planning strategies to reduce your taxes.