The government has announced changes to the stage 3 tax cuts set to take effect from 1 July 2024. Originally the benefits of the stage 3 tax cuts were weighted towards higher income earners but some of this saving has now been moved to lower and middle income earners.

From 1 July this year, every taxpayer will pay less tax but the amount you will save varies depending on your taxable income. A summary of how much tax you will save under the proposed changes as well as how much tax you would have saved under the previously enacted changes is below:

You should start to see the effect of the tax changes in July 2024 through reduced PAYG tax being withheld from your wages or reduced payments being required for PAYG instalments.

There are two major differences between the original stage three tax cuts and the proposed changes. One is that under the original changes, the 37 percent tax bracket was set to be removed. This would have resulted in the tax rate on income between $45,000 and $200,000 being taxed at a flat 30 percent. Now under the proposed changes, income between $45,000 and $135,000 will be taxed at 30 percent and income between $135,000 and $190,000 will be taxed at 37 percent. The new changes provide a greater incentive for tax planning to try and avoid paying tax at 37 percent where possible.

Another major difference is that under the proposed changes the lowest tax bracket will reduce from 19 percent to 16 percent while originally there was going to be no change to this rate. This benefits taxpayers on incomes below $45,000 but also reduces the incentive for taxpayers earning income at these levels to contribute additional money to Super and claim a tax deduction. This is because the saving from claiming a tax deduction on your super contributions where your income is between $21,885 and $45,000 will drop from 6 percent to 3 percent.

The announcement of the proposed changes come after five years of uncertainty as to whether these cuts would go ahead as passed by parliament. Now that the changes have passed parliament, it will provide certainty for your tax planning heading into the new tax year.