Personal income tax - Stage 3 tax cuts
Personal income tax - Stage 3 tax cuts
The Government has confirmed the following measures in the Budget, which were previously announced on 25 January 2024 as part of the its revised Stage 3 tax changes.
Personal income tax - Cost of Living Tax Cuts
The Government did not announce any further changes to the personal tax rates in the 2024-25 Budget. The Budget has instead confirmed what was previously announced on 25 January 2024.
The Government’s revised Stage 3 tax changes, as enacted into law by the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024, commence from 1 July 2024. The Government has legislated permanent tax cuts for all 13.6 million Australian taxpayers from 1 July 2024 with the average annual tax cut being $1,888 (or $36 a week).
Under the Government’s tax cuts from 2024-25:
- The 19% tax rate will be reduced to 16%
- The 32.5% tax rate will be reduced to 30%
- The income threshold above which the 37% tax rate applies will be increased from $120,000 to $135,000
- The income threshold above which the 45% tax rate applies will be increased from $180,000 to $190,000.
The table below compares the rates for 2023-24 with the revised rates for 2024-25.
This measure is estimated to decrease receipts by $1.3 billion over the five years from 2023-24.
| Summary: Tax rates and income thresholds | ||
| Rate | 2023-24 | 2024-25 |
| Nil | $0 - $18,200 | $0 - $18,200 |
| 16% | N/A | $18,201 - $45,000 |
| 19% | $18,201 - $45,000 | N/A |
| 30% | N/A | $45,001 - $135,000 |
| 32.5% | $45,001 - $120,000 | N/A |
| 37% | $120,001 - $180,000 | $135,000 - $190,000 |
| 45% | $180,001 + | $190,001 + |
Medicare levy low-income thresholds for 2023-24
The Government also confirmed its increases to the Medicare levy thresholds announced on 25 January 2024. The new thresholds to provide cost-of-living relief were enacted by the Treasury Laws Amendment (Cost of Living – Medicare Levy) Act 2024.
The changes are as follows:
- From the 2023-24 income year, the Medicare levy low-income threshold for singles has been increased to $26,000 for 2023-24 (up from $24,276 for 2022-23)
- For couples with no children, the family income threshold is $43,846 (up from $40,939 for 2022-23)
- The additional amount of threshold for each dependent child or student is $4,027 for each dependent child or student (up from $3,760)
- For single seniors and pensioners eligible for the Seniors and Pensioners Tax Offset (SAPTO), the Medicare levy low-income threshold is $41,089 (up from $38,365).
HECS indexation
Also as previously announced, HECS debts will be indexed at the lower of the CPI or average weekly ordinary time earnings (AWOTE) from June 2023. This will lead to a substantial reduction in many HECS debts, as indexation at June 2023 was calculated based on CPI, and the AWOTE indexation will result in a much lower increase.
BDO comment
There is nothing new and exciting to see here as all the measures discussed are in line with previous announcements. While the cuts will lead to more money in the pockets of every Australian who pays tax, the relentless nature of bracket creep means we will be here again soon – unless the Government commits at some point to index the tax thresholds as well as HECS debts.