Lending Association

What you need to know about the new Stage 3 tax cuts.

From 1 July 2024, the federal government will implement it’s Stage 3 tax cuts for the 2024/25 financial year. We’re going to dive into the details of what’s changing, explore how these tax cuts may benefit individuals and businesses and assess their potential impact on the economy.

What's changing?

The Stage 3 tax cut brings several key modifications to the current tax structure:

• Tax payers will pay less tax / less tax taken out of income

• The 37 per cent tax bracket will be removed;

• the 32.5 per cent marginal tax rate will be reduced to 30 per cent; and

• the threshold for the 45 per cent tax rate will be increased from $180,000 to $200,000.

• In 2024-25 around 95 per cent of taxpayers will face a marginal tax rate of 30 per cent or less.

“The recommended package is estimated to provide cost-of-living relief to 13.6 million taxpayers, compared to 10.8 million taxpayers under the current legislated tax cuts compared to 2023–24 settings.” – The Treasury

Impact on individuals

Notably, individuals earning less than $150,000 will receive larger tax cuts under the proposed plan compared to the previous one, while those earning above $150,000 will see smaller cuts.

For example, workers who are earning an average of $75,000 will get a tax cut of more than $1500 a year. Those earning $200,000 and above will receive a tax cut of $4529, almost half from the initially proposed $9075 cut.

Australian Prime Minister Anthony Albanese highlighted the purpose of the new Stage 3 tax cuts is to favour low and middle income Australians, providing relief from the pressures of the rising cost of living.

Shifting tax system

Income ($) 2023-24 tax paid ($) Former Stage 3 tax cut ($) New Stage 3 tax cut ($)
40,000 4,142 - 654
70,000 13,217 625 1,429
100,000 22,967 1,375 2,179
130,000 33,167 2,575 3,379
160,000 44,267 4,675 3,729
190,000 56,167 7,575 4,529
220,000 69,667 9,075 4,529
250,000 83,167 9,075 4,529

Table source: Financial Review

Data source: The Tax Institute

Will the Stage 3 tax cuts benefit me?

The primary advantage of the Stage 3 tax cuts is the increase in disposable income for individuals, particularly those in the low to middle income brackets. With lower tax rates and a higher threshold for the top tax bracket, Australians can expect more money in their pockets.

What impact will it have on the economy?

The main purpose of the Stage 3 tax cuts is to favour those with lower incomes, who are more likely to spend their additional income. However, even after the Stage 3 tax cuts come into effect, it’s anticipated that these cuts will not contribute to inflationary pressures. The impact on the cash rate is expected to be minimal, neither increasing the likelihood of another rate rise nor expediting the process.

What will be the impact on borrowing?

The good news for potential borrowers is that borrowing capacity could see a slight improvement after the Stage 3 tax cuts. For instance, singles earning $100,000 could see a $21,100 increase in their borrowing capacity and couples earning a combined $165,000 may experience a $33,500 increase in borrowing capacity.

 

Estimated change in borrowing capacity after Stage 3 tax cuts

Borrower profile and pre-tax income Current borrowing capacity Borrowing capacity after tax cuts Difference
Single earning $65,000 $308,500 $321,000 $12,500
Single earning $100,000 $462,000 $483,100 $21,100
Single earning $150,000 $684,300 $720,400 $36,100
Single earning $200,000 $917,600 $961,500 $43,900
Couple earning $100,000 + $65,000 $754,900 $788,400 $33,500
Couple earning $150,000 + $100,000 $1,170,700 $1,227,800 $57,100

Source: RateCity.com.au

However it’s important to note that these figures depend on monthly expenses, existing debt and dependents. It’s also wise to be mindful that changes in inflation and the market can hinder the anticipated positive impact.

I have a business. Will the Stage 3 tax cut affect me?

As a business owner, you may be wondering how the upcoming Stage 3 tax cuts will impact your operations. While the tax cuts are a positive move, it’s crucial for businesses not to be overly distracted. Ensure that your focus remains on sustainable growth, efficient operations, and long-term wealth creation.

Hear from Danny Chiha, Senior Partner at Kelly Partners Accountants about the importance of staying informed and how their accountants are preparing their clients for the upcoming adjustments.

Contact us!

Having a conversation with one of the Lending Association mortgage brokers or consulting with your accountant ahead of the end of financial year will help alleviate any questions and queries you may have.

Disclaimer

Any information provided herein is of a general nature only. No consideration has been taken into your objectives, needs or financial situation. Before acting on this information you should consider if it is appropriate for your situation.