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Stage 3 Personal Income Tax Cuts Revamped

The Federal Government has unveiled a proposal to overhaul the scheduled personal income tax cuts set to commence on July 1, 2024. This revision aims to redistribute benefits, targeting individuals with taxable incomes below $150,000. The anticipated change is expected to positively impact an additional 2.9 million Australian taxpayers, providing them with higher take-home pay.

The decision to amend the Stage 3 tax cuts reflects a departure from the original intention of the five-year plan to restructure the personal income tax system. Community sentiment, influenced by a significant rise in the cost of living, has prompted this shift in focus towards addressing immediate concerns rather than pursuing long-term structural changes.

The proposed redesign is projected to boost Government revenues from personal income tax by an estimated $28 billion by 2034-35, primarily due to bracket creep.

Key Changes

Tax Rate2023-242024-25 legislated2024-25 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

Under the proposed redesign, all resident taxpayers with taxable income under $146,486, who would actually have an income tax liability, will receive a larger tax cut compared with the existing Stage 3 plan. For example:

  • An individual with taxable income of $40,000 will receive a tax cut of $654, contrasting with no tax cut under the current Stage 3 plan.
  • An individual with taxable income of $100,000 would receive a tax cut of $2,179, $804 more than under the current Stage 3 plan.

However, those earning $200,000 will see their expected benefit halved from $9,075 to $4,529 under the revised plan.

Additionally, there is relief for low-income earners, with the Medicare Levy low-income threshold increasing by 7.1% to align with inflation.

Not set in stone

While the proposed redesign is intended to be broadly revenue-neutral compared with the existing budgeted Stage 3 plan, it will cost around $1 billion more over the next four years before bracket creep starts to diminish the gains.

The Government must swiftly enact amending legislation to implement the redesigned Stage 3 tax cuts by July 1, 2024. This process will involve securing support from independents or minor parties in Parliament.

The inception of the personal income tax plan in the 2018-19 Federal Budget aimed to combat ‘bracket creep’ and restructure tax rates, with Stage 3 initially scheduled for implementation on July 1, 2024.

Moving forward, it’s crucial to review and reset tax planning strategies to ensure optimal financial outcomes.

If you would like help understanding how these changes affect your individual or business tax returns, get in touch with the team at Amarose Group. Our expert business accountants are based in Maudsland on the North Gold Coast and can help you to set up your business for success when it comes to business tax.

Contact us today!

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