Changes to the Stage 3 Tax Cuts explained

In a snapshot, the government’s tax changes came into effect from 1 July 2024. Compared to the original stage 3 tax cuts, these changes give a break to low and middle-income earners by lowering the tax withheld from their take home pay. The result: Australians receive more money in their pockets each week.

NOTE: It’s important to note that these tax cuts have no effect on your 2023-24 tax return.

What’s different about the Stage 3 Tax Cuts in 2024?

The latest changes to the tax cuts include changes to income ranges and tax rates in the marginal tax brackets. Australian workers earning between $18,201 and $45,000 a year will see their 19% marginal tax rate reduced to 16%. Additionally, the threshold for the current 32.5% tax bracket will change from $120,000 per year to $135,000. The tax rate for these workers will drop to 30%.

Instead of scrapping the 37% tax bracket, which was in the plan for the original stage 3 tax cuts, the government has chosen to keep it and change the threshold to include those earning $135,001 – $190,000.

The highest income earners making over $190,001 will continue to sit in the 45% tax bracket. However, they will receive the benefits of the lowered tax rates in other tax brackets. This will lower the tax they pay on some of their income.

Stage 3 Tax Cuts Table

What are the “2024 Cost of Living Tax Cuts”?

The Stage 3 tax cuts, sometimes referred to as the ‘cost of living tax’, were changed in 2024 to provide extra money to more people, not just the highest earners who benefitted from the earlier plan. No matter what we call it, the “cost of living tax cuts” or “revised stage 3 tax cuts” mostly provide some tax relief to middle and high-income Australians.

Let’s look this in more detail::

How does this affect Australian workers?

Mainly, it will increase the take-home pay for most Australian workers. Here’s how…

According to the Australian Bureau of Statistics, in 2023 the median weekly salary in Australia was $1,300. In the 2023-24 financial year, tax withheld on this amount was $265.17 leaving $1,034.83 take home pay, after tax. In contrast, under the new stage 3 tax cuts, a lower amount of $238.85 tax will be withheld. This changes the take home pay of someone on the median weekly salary in Australia $1,061.15, which is $26.32 more per week than the previous year.

Let’s take a look at some more examples:

Teacher
Annual Salary: $95,000
2023-24 Tax: $23,242
Stage 3 Tax: $21,188
Additional weekly take home pay compared to last financial year: $39.50
Additional annual take home pay compared to last financial year: $2,054

Retail Worker
Annual Salary: $65,000
2023-24 Tax: $12,867
Stage 3 Tax: $11,563
Additional weekly take home pay compared to last financial year: $25.07
Additional annual take home pay compared to last financial year: $1,304

Doctor
Annual Salary: $156,000
2023-24 Tax: $45,907
Stage 3 Tax: $42,178
Additional weekly take home pay compared to last financial year: $71.71
Additional annual take home pay compared to last financial year: $3,729

How much better off are YOU each month?

These tax cuts are revised to take less tax out of Australian workers’ pay, which may help with cost-of-living pressures. To help you understand how your pay is affected each month, we’ve put together this graph to show a rough estimate of how much more you’ll receive in your pay each month, compared to the 2023-24 financial year.

Why were the changes made?

The original stage 3 tax cuts, announced in 2018, were written before we experienced the pandemic, high inflation, interest rate rises and the cost-of-living pressures that are now felt throughout Australia. The current Government designed the most recent changes to give Australians more money in their pocket, while keeping with an original plan to make our tax system fairer for all Australians.

How can the government afford to make these changes?

Compared to the original stage 3 tax cuts announced in 2020, which saw those earning a larger salary receive the bulk of the benefits, these revised tax cuts will provide a larger portion of relief to lower and middle-income earners and less benefit to those earning over $135,000 per year. The Federal budget outlines how the government pays for these changes in more detail.

How will the new tax cuts affect my next tax return?

You might have noticed that your 2023/24 tax return has NOT been affected by these new tax cuts! And the cuts will not affect your tax refund. However, as mentioned earlier, the changes may have increased your weekly take-home pay.

Because these changes didn’t come into effect until the 2024-25 financial year (from 1 July 2024). Even now, the new tax rate should automatically be applied by your employer, and on your next tax return. This means you should have seen a small increase in your take-home salary from your first pay after 1 July 2024. If not, make sure you ask your employer!