The Government has announced that they will amend the legislated Stage 3 tax cuts scheduled to commence on 1 July 2024. This will mean that more Australian taxpayers will receive a personal income tax cut and take home more in their pay packet from 1 July, but for some, the impact will be less favourable than it would have been prior to the redesign.

What will change?

Under the proposed redesign, all resident taxpayers with an individual 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 a personal taxable income of $40,000 will receive a tax cut of $654, in contrast to receiving no tax cut under the current Stage 3 plan (but they are likely to have benefited from the tax cuts at Stage 1 and Stage 2).
• An individual with a personal taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan.

However, an individual earning $200,000 will have the benefit of the Stage 3 plan slashed to around half of what was expected from $9,075 to $4,529. There is still a benefit compared with current tax rates, just not as much.

There is additional relief for low-income earners with the Medicare Levy low-income thresholds expected to increase by 7.1% in line with inflation. It is expected that an individual will not start paying the 2% Medicare Levy until their income reaches $32,500 (up from $26,000).

The current, legislated, and redesigned Stage 3 tax rates for Australian resident taxpayers

However, the Government will need to quickly enact amending legislation to make the redesigned Stage 3 tax cuts a reality by 1 July 2024. This will involve garnering the support of the independents or minor parties to secure its passage through Parliament.

What is meant by Stage 3 Cuts?

First announced in the 2018-19 Federal Budget, the personal income tax plan was designed to address the issue of ‘bracket creep’ – tax rates not keeping pace with growth in wages and increasing the tax paid by individuals over time.

The three point plan sought to restructure the personal income tax rates by simplifying the tax thresholds and rates, reducing the tax burden on many individuals and bringing Australia into line with some of our neighbours. The three point plan introduced incremental changes from 1 July 2018, 1 July 2020, with the current tax rates being stage 2. Stage 3 is legislated to take effect from 1 July 2024.

The three stages of reform

If you have any concerns as to the impact caused by these proposed changes please contact your adviser today or contact us on 07 4688 8400.