Stage 3 Tax Cuts in Australia: Who Benefits in 2024/2025?
Last Updated on 27 January 2024 by Ryan Oldnall
Australia has had a number of tax rate changes over the past few decades with this being the most recent shuffle. Under the new stage 3 tax cuts, Australia will have just 4 tax brackets.
The logic behind the removal of the 37% tax rate is “bracket creep”. These are the individuals whose income has increased over time leading them to fall into a higher tax bracket.
As many of us would know, with the current levels of inflation, the pay rises we have earned in the past year or so have all been all but swallowed up with the price rises in products and services. As the taxation rates did not factor inflation, these individuals were gradually worse off over time.
When do stage 3 tax cuts start
The Stage 3 tax cuts start on July 1st 2024 with the stage 2 having commence in July 2022.
Who benefits the most from the Stage 3 Tax Cuts
The new Australia Stage 3 tax cuts will benefit those in the current 32.5% and 37% tax brackets, as they will be taxed at 30% instead of 32.5% and 37%, respectively. The beneficiaries of the Stage 3 Tax cuts in Australia are individuals earning between $45,001-$200,000. These individuals will experience a reduction in their tax payable.
To illustrate the benefits of the Stage 3 Tax cuts, let’s consider two individuals earning $100,000 and $180,001, respectively.
Individual A Earning $100,000 (Assuming individual is single with no private health insurance)
2023/2024 – Individual A earns $74,033 annually after tax
2024/2025 – Individual A earns $75,408 annually after tax
Individual B Earning $180,001 (Assuming individual is single with no private health insurance)
2023/2024 – Individual B earns $122,033.51 annually after tax
2024/2025 – Individual B earns $128,108.66 annually after tax
In the above examples, Individual A stands to benefit $1,375 annually in 2024/2025, while Individual B, who would have been in the highest tax bracket the year before, will benefit to the tune of $6,075.15.
Overall, the Australian Stage 3 Tax cuts will provide a significant benefit to individuals in the 32.5% and 37% tax brackets, resulting in a reduction in their tax payable. The removal of the 37% tax bracket will prevent bracket creep from negatively impacting taxpayers in the future.
It is important to note that not everyone will benefit equally from these tax cuts. Those who are already in the lower tax brackets, such as those earning less than $45,000 per year, will not see any change in their tax rate or tax payable.
Additionally, those in the highest tax bracket (earning over $200,000 per year) will still be subject to the same tax rate of 45%, but with a higher income threshold.
