Recently, as you may be aware, the Government has suggested modifications to the scheduled stage 3 tax cuts set to be implemented from 1 July 2024, and we thought it prudent to communicate these with you.
To enact these proposed changes, however, legislation must be approved, and the Government is set to present a Bill when Parliament reconvenes on 6 February, being the first opportunity for introduction.
In comparison to the established stage three cuts, the suggested alterations are;
- Decrease the 19% tax rate to 16%
- Reinstate the 37% tax bracket (scheduled for removal from 1 July), with an extended income band from $120,000 to $135,000
- Lower the threshold triggering the 45% tax rate from $200,000 to $190,000
Additionally, the Medicare levy low-income thresholds will see an increase, relieving more Australians of the Medicare levy obligation.
Comparison of Tax Rates and Thresholds
We have included a table below that illustrates the current financial year’s legislated stage three tax cuts with the proposed rates and thresholds from 1 July 2024
| Current financial year | Legislated stage 3 from 1 July 2024 | Proposed stage 3 from 1 July 2024 | |||
| Taxable income | Tax rate | Taxable income | Tax rate | Taxable income | Tax rate |
| Up to $18,200 | Nil | $0 – $18,200 | Nil | Up to $18,200 | Nil |
| $18,201 – $45,000 | 19% | $18,201 – $45,000 | 19% | $18,201 – $45,000 | 16% |
| $45,001 – $120,000 | 32.5% | $45,001 – $200,000 | 30% | $45,001 – $135,000 | 30% |
| $120,001 – $180,000 | 37% | $135,001 – $190,000 | 37% | ||
| > $180,000 | 45% | > $200,000 | 45% | > $190,000 | 45% |
Comparing the tax savings
The change in tax savings for different levels of income are summarised in the table below, and we have included a quick link to a calculator on the Treasury website which calculates tax savings under the modified tax plan, relative to the current financial year.
| Taxable income | Tax saving under legislate Stage 3 | Tax saving under proposed changes | Difference |
| $20,000 | $0 | $0 | $0 |
| $30,000 | $0 | $354 | $354 |
| $40,000 | $0 | $654 | $654 |
| $50,000 | $125 | $929 | $804 |
| $60,000 | $375 | $1,179 | $804 |
| $70,000 | $625 | $1,429 | $804 |
| $80,000 | $875 | $1,679 | $804 |
| $90,000 | $1,125 | $1,929 | $804 |
| $100,000 | $1,375 | $2,179 | $804 |
| $110,000 | $1,625 | $2,429 | $804 |
| $120,000 | $1,875 | $2,679 | $804 |
| $130,000 | $2,575 | $3,379 | $804 |
| $140,000 | $3,275 | $3,729 | $454 |
| $150,000 | $3,975 | $3,729 | -$246 |
| $160,000 | $4,675 | $3,729 | -$946 |
| $170,000 | $5,375 | $3,729 | -$1,646 |
| $180,000 | $6,075 | $3,729 | -$2,346 |
| $190,000 | $7,575 | $4,529 | -$3,046 |
| $200,000+ | $9,075 | $4,529 | -$4,546 |
Implications for you
These adjustments remain in the proposal stage and are not yet law. If approved by Parliament however, it may be necessary to reassess prior advice that relied on the initially legislated tax cuts, to ensure it is still relevant to you
This may involve reviewing advice related to:
- Timing personal deductible contributions to optimise tax benefits based on your current and future Marginal Tax Rate (MTR)
- Contributions from 1 July 2024, considering the potential reduced tax saving due to the proposed changes
- Contribution reserving strategies for Self-Managed Superannuation Fund (SMSF) members
- Timing of pre-paid expenses
- Disposal of assets and realisation of capital gains and losses
- Timing of retirement and lump sum payments related to unused leave and other entitlements
While this is still in proposal stage at this time, we understand it may raise questions for our clients.
Please do not hesitate to contact your financial adviser if you have any questions or if you would like to discuss your situation with an MiQ adviser, please click here to request a meeting with an adviser near you.
