As working Australians are well aware, the amount of tax you pay depends on your income. This progressive tax system means the more you earn, the more tax you pay.
This article will demystify the current tax brackets for the financial year 2023-2024 and explain the impact of the stage three tax cuts due to be implemented this year.
Understanding the current tax brackets
The tax brackets for the financial years of 2019-2020 to 2023-2024 have remained constant. For the current financial year, your tax bracket will depend on your income.
Here is a breakdown of the current tax brackets:
Taxable income
$0–$18,200
$18,201–$45,000
$45,001–$120,000
$120,001–$180,000
$180,001 and over
Tax on this income
Nil
19c for each $1 over $18,200
$5,092 plus 32.5c for each $1 over $45,000
$29,467 plus 37c for each $1 over $120,000
$51,667 plus 45c for each $1 over $180,000
Marginal tax rate
0%
19%
32.50%
37%
45%
These tax rates offer a useful insight into how much tax Australians are expected to pay, depending on their income. However, these rates do not include the Medicare levy of 2%.
Please note that your actual tax may vary due to factors such as your deductions, any tax exemptions you may be entitled to, and other investments you may be taxed on such as foreign income.
Stage three tax cuts
There may be some tax-saving opportunities for you with the recently announced updated Stage 3 Tax Cuts.
The Federal Government announced that they will amend the legislated Stage 3 Tax Cuts that are scheduled to begin on 1 July 2024.
Why? They decided to redistribute some of the planned tax savings for higher income earners to lower income earners, to assist them with cost-of-living pressures.
The new tax brackets following the implementation of the stage three tax cuts will be:
Taxable income
$0–$18,200
$18,200–$45,000
$45,000–$135,000
$135,000-$190,000
$190,000 and over
Tax rate
Nil
16%
30%
37%
45%
As a result of these changes:
- High income earners earning $200,000 will have their proposed tax saving slashed from $9,075 to $4,529.
- Individuals earning under $45,000 and not eligible for the original State 3 Tax Cuts will now benefit, with a tax rate of 16% being reduced from 19% – which is worth a maximum of $804 for someone earning $45,000 or above.
- An individual earning $90,000 will receive a tax cut of $1,929 – up from $1,125 under the original Stage 3 Tax Cuts.
While the original Stage 3 Tax Cuts have been legislated, the updated Stage 3 Tax Cuts still need to be agreed to by Federal Parliament.
The importance of tax planning to minimise your tax
By forecasting your expected 2024 income and tax payable for all individuals and entities in your family group, we can then develop strategies to “spread” your income across your family group in the most tax effective way – and legally reduce your tax.
One of these strategies may be deferring income into the 2025 year so that you can take advantage of these updated Stage 3 Tax Cuts!
Interestingly, the tax refund “value” of a tax deduction able to be paid leading into June 30th, 2024 is better this quarter than being paid in July 2024. This is because the tax rates are set to decrease from July 1, 2024. Therefore, if you have expenses that are relevant to income from employment or investments, consider prepaying 2024-2025 expenses this financial year.
Changes to the Australian tax brackets and the introduction of stage three tax cuts will have a significant impact on the income Australians take home. Understanding these changes and planning accordingly can help you maximise your income and prepare for the future.
Contact KMT accountants now for tax planning advice or assistance.
About our advisers:
Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 4 decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with your business valuation.
Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. She empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Her commitment to building trust and lasting relationships goes beyond professional excellence; it’s a personal ethos. By actively listening and understanding her clients’ businesses and goals, Chrisanthe thrives on collaborative efforts to navigate challenges and collectively achieve their aspirations. Please do not hesitate to reach out if you need assistance.
FAQs
What is the bracket creep in Australia?
Tax brackets are determined by the Federal Government. Over the past 20 years, the federal government has maintained the tax wedge — the measure of tax on labour income — at around 26-29%.
As average income increases over time due to inflation and wage growth, tax brackets must be periodically adjusted to prevent an increase in the average tax burden. This phenomenon is known as bracket creep.
What are some common mistakes people make when claiming work-related tax deductions?
According to the search results, some common mistakes include:
- Guessing or estimating deduction amounts instead of using actual receipts.
- Failing to declare overseas income and work-related expenses.
- Claiming deductions without having the necessary receipts or proof of purchase.
The search results advise keeping good records, using genuine amounts from receipts, and consulting a tax agent to ensure you claim the correct deductions.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.
