Stage three tax cuts are legislated to take effect from July 1, 2024.

Prime Minister Anthony Albanese has introduced modifications to the stage three tax cuts, marking a significant phase in Australia's income tax reforms. These changes aim to extend benefits to lower and middle-income earners.  

The government's decision to alter the previous plan of the stage three tax cuts, confirmed in January, has been a focal point of discussion. Following debates within the Coalition, the Liberal party opted not to obstruct the passage of the new legislation. Consequently, the laws were passed on February 27 after receiving Senate approval. These changes will come into effect at the beginning of the financial year on July 1.

Compared to the original stage three tax cuts, the revised version provides some relief to low and middle-income earners by reducing the tax withheld from their take-home pay. Importantly, these adjustments will not impact the 2023-24 tax returns.

What's Different About the 2024 Stage 3 Tax Cuts?

The latest adjustments to the tax cuts involve modifications to income ranges and tax rates within the marginal tax brackets. Workers earning between $18,201 and $45,000 annually will witness their 19% marginal tax rate drop to 16%. Furthermore, the threshold for the current 32.5% tax bracket will shift from $120,000 per year to $135,000, with the tax rate for these earners decreasing to 30%.

Rather than eliminating the 37% tax bracket, as initially planned, the government has opted to retain it while adjusting the threshold to include those earning $135,001 – $190,000.

High-income earners exceeding $190,001 will remain in the 45% tax bracket. However, they will benefit from the lowered tax rates in other brackets, thereby reducing the tax payable on a portion of their income.

Impact on Australian Workers

Primarily, these changes will result in increased take-home pay for most Australian workers. For instance:

Median weekly salary earners: Under the new stage 3 tax cuts, they will see an increase of $26.32 per week compared to the previous year.

How Will the New Tax Cuts Affect Your Next Tax Return?

These tax cuts are designed to reduce the tax burden on Australian workers' pay, potentially easing cost-of-living pressures. The revisions prioritise providing Australians with more disposable income while maintaining the goal of a fairer tax system.

As for the affordability of these changes, unlike the original stage 3 tax cuts, which primarily benefited higher earners, the revised cuts offer a larger proportion of relief to lower and middle-income earners. Details regarding the funding of these changes will be outlined in the upcoming Federal budget.

It's essential to note that these changes will not affect your 2023/24 tax return, due in July 2024. They will only take effect in the 2024-25 financial year. Employers should automatically apply the new tax rates from July 1, 2024. If not, individuals are advised to inquire with their employers.