As of the 1st of July, the Albanese government’s revamped stage 3 tax cuts are now live. But not without a bit of a fuss.
If you’ve been living under a rock for the past while (we wouldn’t blame you), you may have missed the full story – and it’s worth being across. Basically, to address the rising cost of living, the third round of cuts has been rejigged to provide more tax relief to lower and middle earners, and less to those on the higher end of the scale.
What this means is that your tax bill will go down over the next financial year (unless you earn under or close to the tax-free threshold). But if you’re doing especially well for yourself, it may decrease less than expected under the original plan.
If you’re all about the context, we’ve got you covered. If you want a rough estimate of your tax bill after the cuts, you can skip ahead to our tax calculator. And if you’re curious about how different this year’s tax bill will be compared to last year’s, we still have last year’s tax calculator available to use.
Go on, plug your numbers in, have a play. We know you want to.
- What are the stage three tax cuts?
- Tax calculator for FY 2024/25
- Tax calculator for FY 2023/24
- Hnry just does it for you
What are the stage three tax cuts?
In 2019, the Morrison government promised to implement sweeping tax relief spread across three different stages:
Stage one increased the threshold for the 37% tax rate from $87,001 to $90,001, lowering the tax bill of everyone making $87k+ (current full-time median income is $82,200). It also included a temporary low-middle income tax offset (LMITO) of up to $1,080, which expired on the 30th June 2022.
Stage two raised the threshold for the 32.5% tax rate from $37,001 to $45,001, and the threshold for the 37% tax rate from $90k to $120k.
Both these stages came into effect in the 2018/19 and 2020/21 financial years respectively. They were aimed at providing tax relief to lower and middle income earners, but because of Australia’s progressive tax rate system, higher earners also saved on their tax bill.
The original stage three cuts
The original stage three cuts were mainly for higher income earners.
It consolidated the 32.5% and 37% tax brackets into one 30% tax bracket for income between $45,001-$200,000, making the threshold for the 45% tax bracket $200,001+.
We know – it’s a lot of numbers. Let’s lay it all out in a table:
| Tax rate | Stage one* | Stage two | Original stage three |
|---|---|---|---|
| 0% | $0 - $18,200 | $0 - $18,200 | $0 - $18,200 |
| 9% | $18,201 - $37,000 | $18,201 - $45,000** | $18,201 - $45,000 |
| 30% | - | - | $45,001 - $200,000** |
| 32.5% | $37,001 - $90,000 | $45,001 - $120,000 | - |
| 37% | $90,001 - $180,000 | $120,001 - $180,000 | - |
| 45% | $180,001+ | $180,001+ | $200,001+ |
*Plus the LMITO, which expired 30 June 2022.
** Numbers in bold indicate a threshold has been raised
Basically, the original stage three would provide some relief for those earning over $45k, but the more you earn, the more you were set to benefit.
The new stage three cuts
Given that the high cost of living showed no signs of slowing down, the Albanese government opted to revamp the proposed stage three tax cuts to deliver more relief to lower and middle income earners.
The new stage three cuts lowered the 19% tax bracket to 16%, kept the 37% tax rate and increased the threshold to $135,001, and lowered the threshold for the 45% tax rate to $190,001.
| Tax rate | Stage two | Original stage three | New stage three |
|---|---|---|---|
| 0% | $0 - $18,200 | $0 - $18,200 | $0 - $18,200 |
| 16% | - | - | $18,201 - $45,000* |
| 19% | $18,201 - $45,000 | $18,201 - $45,000 | - |
| 30% | - | $45,001 - $200,000 | $45,001 - $135,000 |
| 32.5% | $45,001 - $120,000 | - | - |
| 37% | $120,001 - $180,000 | - | $135,001 - $190,000 |
| 45% | $180,001+ | $200,001+ | $190,001+ |
* Threshold changes in bold
These changes went live on the 1st of July – the start of the financial year 2024/25.
The tl;dr of it all is that the cuts promised to higher earners was reduced, while those for low to middle earners was increased. According to the Australian Institute, the old stage three would have given someone on a $200k salary a tax cut of almost 6% (including stages one and two), while someone on $40k would have received only 1% from stage two, and nothing from stage three.
Under the new changes, someone on a $200k salary would still receive a cut of around 3.5% overall, and the earner at $45k would also save just over 2.5%.
Tax calculator for financial year 2024/25
So what does this mean for you, specifically? Well, with any luck, tax savings!
Plug your numbers into our tax calculator for a rough estimate of how much you’ll owe post stage three cuts:
Tax calculator for financial year 2023/24
If you’re interested in the difference between your tax bill for this financial year vs. last financial year, we’ve got you covered.
Use this calculator for last financial year’s numbers as a quick way to compare:
Hnry just does it for you
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For just 1%+GST of your sole trader income, capped at $1,500+GST a year, we’ll sort your:
We’ll also complete and lodge your tax return for you, at no extra cost – it’s all part of the service.
So what are you waiting for? Ditch the maths, and never think about tax again!
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