The Upcoming Tax Cuts: What You Need to Know

24 June 2024

Overview

• Australian individual taxpayers can expect reduced tax rates from 1 July 2024.

• The tax cuts will benefit those in the lower and middle income thresholds.

• From 1 July, those earning $26,000 or less will be exempt from paying the medicare levy.

The Upcoming Tax Cuts

From 1 July 2024, the Stage 3 tax cuts will come into effect, delivering tax relief for all Australian individual taxpayers. The cuts have been designed to ease the cost of living pressures faced everyday by most Australians. From the 1st of July, individuals will now pay less tax each payment period, meaning they will keep more of what they earn. On average, Australian taxpayers will receive a tax cut of $1,888. 

Not only will Australians be keeping more of what they earn, the tax cuts are expected to increase labour supply by 930,000 hours per week. 

What will the Changes Look Like?

As illustrated in the table below, the tax cuts will reduce the tax rates for those within the thresholds of $18,201- $45,000 from 19% to 16% and $45,001 – $120,000 from 32.5% to 30%, while the higher income thresholds rate will not change. Another noteworthy fact is that the threshold in which the 45% rate applies has increased from $180,000 to $190,000. 

Tax Cuts – Changes to the Medicare Levy

Alongside the tax rate cuts, there will also be an increase in the Medicare levy low-income threshold. The Medicare levy is currently 2% of your taxable income but is not payable for low-income earners. However, for the 2024-25 year, the threshold will exempt people earning $26,000 or less from paying the levy. After this, the levy will gradually increase and those earning more than $32,000 will pay the full 2% levy. 

Example: Implementing the Tax Cuts

The table above summarises the tax cut major changes to each threshold, however, here is a more detailed understanding of how the tax cut changes will work for each tax paying individual.

If you earn between $18,201 and $45,000:

• Your first $18,200 remains tax free, and

• You will pay 16 cents tax on every dollar you earn between $18,201 and $45,000.

If you earn between $45,001 and $135,000:

• Your first $18,200 remains tax free, and

• You will pay 16 cents tax on every dollar you earn between $18,201 and $45,000, plus

• 30 cents tax on every dollar you earn between $45,001 and $135,000.

If you earn between $135,001 and $190,000:

• Your first $18,200 remains tax free, and

• You will pay 16 cents tax on every dollar you earn between $18,201 and $45,000, plus

• 30 cents tax on every dollar you earn between $45,001 and $135,000, plus

• 37 cents tax on every dollar you earn between $135,001 and $190,000.

If you earn over $190,000:

• Your first $18,200 remains tax free; and

• You will pay 16 cents tax on every dollar you earn between $18,201 and $45,000, plus

• 30 cents tax on every dollar you earn between $45,001 and $135,000, plus

• 37 cents tax on every dollar you earn between $135,001 and $190,000, plus

• 45 cents tax on every dollar you earn above the $190,000 threshold

Take Action 

Whether you are a low or high income earner, it’s important to understand how these tax changes will impact you. Contact our experienced tax professionals at Aero Accounting Group today to help you feel more informed approaching the new financial year. The tax cuts can be daunting, but our team is here to make it easier for you!