Proposed changes to the Stage 3 Tax Cuts

✂️ Backflip or Timely Pivot? ✂️

The Government has announced changes to the already legislated stage 3 tax cuts commencing on 1 July 2024. In a media release on Thursday 25 January 2024, the Government stated that it has reversed its position to leave the Stage 3 tax cuts and instead proposed changes that are “designed to provide bigger tax cuts for middle Australia to help with cost-of-living, while making our tax system fairer.”

These changes are proposed only and have not yet been legislated. The announced changes, effective from 1 July 2024 will:

• reduce the current 19% tax rate to 16%

• reduce the current 32.5% tax rate to 30%

• increase the current threshold above which the 37% tax rate applies from $120,000 to $135,000

• increase the current threshold above which the 45% tax rate applies from $180,000 to $190,000

What is the impact of the proposed change?

The proposed tax changes would provide a higher tax cut to individual taxpayers with taxable income of approximately $146,500 or less. Low Income earners are the greatest beneficiaries, receving a tax boost where no benefit was intended (Stage 1 and Stage 2 tax cuts have already been delivered in previous years by previous governments which delivered for low and middle income earners).

The maximum tax cut would also be approximately halved (from $9,075 to $4,529) for higher income earners, with the maximum tax cut applying where taxable income is $190,000 or more.

From a tax advisors perspective

We see this as a missed opportunity to provide significant structural tax reform and make Australia’s personal income tax rates more competitive on a global scale.

Abolishing an entire tax bracket between taxable incomes of $45k and $200k would have caught up many years of bracket creep and simplified budgeting/planning for employers and employees alike.

Under the Cost of living support for all Australians is welcome, but this could have been delivered in a more targeted manner outside of tax legislation directly where it is needed most.

Final Thoughts

Cost of living support for all Australians on all incomes is welcome, but we feel this relief could have been delivered in a more targeted manner outside of tax legislation directly where it is needed most.

We need a bold government to deliver bold tax reforms that thinks beyond the 3 year political cycle. At a very minimum, the changes are better than scrapping Stage 3 entirely and will deliver some form of benefit to every Australian Taxpayer.

What do you think?

Right change at the right time or chasing short term political points over long term progress?

Let us know your thoughts 💬

Alexander Laureti is the Principal and Managing Director of LMS Advisory. He holds a Bachelor’s degree in Accounting and Law, and he is a Fellow of the CPA (Certified Practising Accountants) and a Chartered Tax Advisor. Alexander has over 17 years of experience as an accountant in Public Practice.
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