What are the stage 3 tax cuts?
Australia’s stage 3 tax cuts are the last stage in the controversial tax package the Federal Government announced and implemented from 2018.
The intent of the tax package was to simplify the tax system and provide a solution to bracket creep. The stage 3 tax cuts involve a significant widening of a tax bracket to provide a single marginal tax rate for a considerable number of Australian taxpayers.
What do the latest round of Government tax cuts mean for you?
In a nutshell, tax rates for middle and high-income earners are to be lowered and the threshold for high income earners is set to rise. These changes follow on from the stage 2 tax updates.
To recap, stage 2 saw:
- A rise in the upper threshold of the 19% tax bracket from $37,000 up to $45,000.
- Moving the 32.5% bracket, from $37,001–$90,000 to $45,001–$120,000.
- An increase in the bottom threshold for the 37% tax bracket. Bringing that threshold up from $90,001 to $120,000.
Here’s how the stage 3 tax cuts look:
- Stage 3 sees the end of the 37% tax bracket for people earning between $120,001–$180,000. With a reduction of the 32.5% bracket, this means that everyone earning $45,001 up to $200,000 will pay the same, new marginal tax rate of 30%.
- There is also an increase to the 45% tax threshold for higher income earners, which rises from $180,000 up to $200,000.
- This ‘flattening’ consequently pulls the number of tax brackets in Australia back to 4.
What are the new tax brackets for the 2024-25 financial year?
This is how the stage 3 tax cuts change the tax brackets:
| Tax rate | Taxable income |
| Nil | $0 – $18,200 |
| 19% | $18,201 – $45,000 |
| 30% | $45,001 – $200,000 |
| 45% | $200,000+ |
When do the stage 3 tax cuts start?
The stage 3 tax cuts come into play on 1 July 2024.
How will the stage 3 tax cuts affect me?
This 3rd stage comes hot on the heels of stage 2 of the tax reform, which ended on 30 June 2022. The repercussions of the end of stage 2 won’t truly hit, until low to middle-income earners lodge their 2022-23 tax returns.
Many lower income Australians are set to lose a noticeable sum from their tax refunds this tax season. After a year of rising interest rates and living costs, this will be disappointing to a lot of people throughout the country.
In contrast, middle to high income earners are the winners in this final round of tax cuts. Australians in this income range should see an increase in their take home pay each month, as the lower tax rates kick in.
How that looks in your take home pay:
| Basic Salary Before Tax | 2019-20 Take home | 2021-22 Take home | 2024-25 Take home |
| $45,000 | $38,828 | $39,908 | $39,908 |
| $70,000 | $55,703 | $56,783 | $57,408 |
| $120,000 | $88,103 | $90,533 | $92,408 |
| $180,000 | $125,903 | $128,333 | $134,408 |
| $200,000 | $136,903 | $139,333 | $148,408 |
Wrap up
With the Federal Government’s tax cut plan estimated to cost the budget $31 billion by 2030, unsurprisingly, there has been considerable debate surrounding it.
An Australian Institute report in late 2022, showed that support had grown for stage 3 of the tax cuts to be abolished. With 61% of Australians feeling the plan is outdated. Interestingly, it also showed a preference for the government to adapt economic policies to suit changing economic circumstances, even if that means breaking an election promise.
Business and Individual tax services provided by Etax Local:
Need a quote or more information about our services? Our team are always happy to help.
Tax Agent
