What are the Stage 3 tax cuts?

The Stage 3 tax cuts are the third round of major tax reform that were introduced in the 2018/2019 Federal Budget under the former Liberal government.

These tax cuts relate to personal income tax and impact all Australian taxpayers.

With Stage 1 and Stage 2 tax cuts introduced over the past few years, the Stage 3 tax cuts are set to take effect on 1 July 2024.

As part of the Labor government’s election promise, a commitment was made to keep these tax cuts and proceed with them as planned.

After much speculation and anticipation, Prime Minister Albanese has announced amendments to the original Stage 3 tax cuts that were introduced by the Morrison government.

What were the original Stage 3 tax cuts?

The purpose of the Stage 3 tax cuts was to provide tax relief for hard working middle to high income Australians.

To understand the benefit that would have been received under the original plan, a comparison between the current 2024 financial year (FY24) tax rates and the original Stage 3 tax rates is helpful.

Current FY24 tax rates

Original Stage 3 tax rates

The main features of the original Stage 3 plan included:

• Reducing the number of tax brackets from five to four
• Abolishing the 37% tax bracket
• Lowering the 32.5% tax bracket to 30%
• Increase the starting point for the highest income tax bracket from $180,000 to $200,000

Ultimately, the original plan would have created a more simplified tax system and the biggest winners from these tax cuts would have been anyone earning between the $45,000 to $200,000.

What are the updated Stage 3 tax cuts?

The updated Stage 3 tax cuts target tax relief to low and middle income earners who are the biggest winners from these changes.

Individuals earning between $50,000 to $130,000 will receive the largest tax benefit from the Labor government’s updates.

Updated Stage 3 tax rates

Once this change is legislated, these tax rates will apply from 1 July 2024 to all Australian resident individuals.

The key differences between the original Stage 3 tax cuts and the updated Stage 3 tax cuts include:

• Lowering the rate for the lowest tax bracket to from 19% to 16%
• Reinstating the 37% tax bracket that was set to be abolished under the original plan
• Lowering the threshold for the top tax rate from $200,000 to $190,000

How much will I save under the Stage 3 tax cuts?

This is the question on everyone’s lips. To estimate your tax savings under the updated Stage 3 tax cuts, you can use Treasury’s Tax Calculator.

Closing remarks

All Australians can still expect to receive some form of tax relief under the revised Stage 3 tax cuts.

However, high income earners will receive half the cut they would have received under the Liberal party’s original plan.

I suppose we should all just be grateful that there is some form of tax relief coming our way in the near future.

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