The Australian government earlier this year approved the stage 3 tax cuts effective as of 1 July 2024 to reduce the marginal tax rates for individual taxpayers.
This is all well and good, but what exactly does this mean for you based on your income?
Well, the updated rates are as follows:
| Taxable Income | Tax on this income |
|---|---|
| First $18,200 | $0 |
| $18,200 - $45,000 | 16% of every $1 over $18,200 (Caps at $4,288) |
| $45,001 - $135,000 | $4,288 + 30% of every $1 over $45,000 (Caps at $31,288) |
| $135,001 - $190,000 | $31,288 + 37% of every $1 over $135,000 (Caps at $51,638) |
| $190,000+ | $51,638 + 45% of every $1 over $190,000. |
We have prepared a table below summarising the difference in tax payable when comparing the 2024-2025 marginal tax rates to the 2023-2024 marginal tax rates.
Let's assume a taxpayer has a taxable income of $190,000:
| Taxable Income Brackets 2023-2024 | Tax Rate | Tax Payable | Tax Payable under 2024-2025 Rates | Difference |
|---|---|---|---|---|
| First $18,200 | 0% | $0 | $0 | $0 |
| $18,200 - $45,000 | 19% | $5,092 | $4,288 | $804 |
| $45,001 - $120,000 | 32.5% | $24,375 | $22,500 | $1,875 |
| $120,001 - $180,000 | 37% | $22,200 | $21,150 | $1,050 |
| 180,001+ | 45% | $4,500 | $3,700 | $800 |
| Total Tax Payable | $56,167 | $51,638 | $4,529 |
As the table demonstrates, there is a maximum overall tax saving achieved when you have a gross income of $190,000 or higher of $4,529.
This diminishes depending on how much lower your income is compared to the $190,000 cap.
For example, a taxpayer with a taxable income of $120,000 would receive the $804 & $1,875 savings from the first two brackets identified in the table above.
A taxpayer with a taxable income of $82,500 which is exactly halfway between the $45,001 to $120,000 bracket would receive the $804 saving and half of the $1,875 saving ($937.50).
This is how you can determine how much tax you can expect to save this year compared to last.
For employed staff, your employer will adopt the new withholding requirements based on these updated tax rates and so we would see a taxpayer earning the same salary as last year, receiving a bit more in their regular payments due to less tax being required to be withheld.
For ABN holders, it simply means less tax will need put aside to cover your tax bills as they fall due.
If you would like to enquire with myself or my business partner Benjamin Audino to discuss these changes further, or for any other tax and accounting requirements, you may do so from the contact page of our website or by emailing your enquiry to enquiries@jetaa.com.au.