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How do changes to stage 3 tax cuts affect you

Labor’s changes to stage three tax cuts will pass parliament after the Coalition agreed to the reform that redistributes benefits to low- and middle-income earners. The changes sparked debate and certainly created a storm of political differences and media attention. Any attention to tax legislation is "good" attention as these decisions impact us all.

Whatever your thoughts on the tax cuts are, both parties in Australia have failed to address the greater issue of tax reform. The tax system in Australia is in need of a major overhaul. We rely far too heavily on personal income tax and too little on consumption tax (GST) but that topic deserves a blog of its own. 

The federal government has announced an overhaul of the previous Coalition government stage 3 tax cuts and introduced various changes in the personal tax rates that apply from 2024-25 income year and onwards.

Changing the original course of action, as announced by the previous Coalition Government, the new tax changes aim to focus on the low and middle income earners to help with the cost-of-living pressures.

The following changes have been announced to the personal tax rates:

  • the lowest rate of income tax will be reduced form 19 cents in a dollar, down to 16 cents, this means a taxpayer earning $50,000 per year will receive a tax cut worth over $900 a year.

  • the second tax rate will be cut from 32.5 percent down to 30 per cent and that will apply to an annual income of up to $135,000.

  • The 37 per cent rate will be retained and will now apply from $135,000 - an increase up from $120,000.

  • In the first increase since 2008, the threshold for the top tax rate of 45 per cent will also be increased. It will now kick in at $190,000, up from $180,000.

You will roughly receive the following tax cuts, based on your annual income:

Other matters

In addition to changing the tax rates and thresholds, the Government will also increase the low-income Medicare threshold and exempt more low-income earners from the 2% Medicare levy charge, it is yet to be seen if this increase will be the usual increase by consumer price index (CPI) or more.

A 12-month long price enquiry will be conducted by the Australian Competition and Consumer Commission (ACCC) to scrutinise the supermarket pricing and the difference between farmgate and retail pricing shoppers end up paying.

Please note, the proposed changes are currently in the announcement stage and require parliamentary approval to become law.

Please feel free to contact me if you have any questions.


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