Tax changes – what it will mean for you

Prime Minister Anthony Albanese recently announced proposed changes to address ongoing cost of living pressures with all 13.6 million Australian taxpayers receiving a tax cut from 1 July 2024, compared to the tax they paid in 2023-24.i

Now is the time to assess what it means for your hip pocket and what implications it may have for end-of-financial-year planning because of the new rules, which will be effective from 1 July 2024.

The Federal Government has recently announced changes to the third stage of a series of tax reforms introduced by the previous Coalition government almost six years ago. These reforms were designed to deliver tax cuts to most, simplify the tax system, and protect middle-income earners from tax bracket creep.

The proposed changes

The new rules will see the current lowest tax rate reduced from 19 per cent to 16 per cent, and the 32.5 per cent marginal tax rate reduced to 30 per cent for individuals earning between $45,001 and $135,000.

The current 37 per cent marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45 per cent rate will now apply to income earners with taxable incomes exceeding $190,000.

In addition, the low-income threshold for Medicare levy purposes will be increased for the current financial year (2023-24).

A single taxpayer with a taxable income of $190,000 paid $59,967 in tax in 2023-24. Under the revised rules, they will now pay $55,438 in tax, a tax cut of $4,529. While still a reduction in tax paid, this compares with the $7,575 tax cut received if the original Stage 3 tax cuts had proceeded.

On the other hand, low-income earners will receive a bigger tax cut under the revised rules.

A single taxpayer with a taxable income of $40,000 who paid $4,367 in tax in 2023‑24 would have received no benefit from the original Stage 3 tax plan but will now receive a tax cut of $654 under the revised rules.

Implications for investment strategies

For high-income earners, the key takeaway from the government’s new changes to the tax rules is that you will now receive a lower amount of after-tax income than you may have been expecting from 1 July 2024.

This reduction makes it sensible to revisit any investment strategies you had planned to take advantage of, due to your larger tax cut, and ensure they still stack up.

For example, the smaller tax cut for some may impact the effectiveness of property investment.

Investment strategies such as negative gearing into property or shares, however, may become more attractive, particularly for investors close to the new tax thresholds and looking for opportunities to avoid moving onto a higher tax rate.

Timing expenditure and contributions

Investors considering repairs or maintenance for an existing investment property should revisit when these activities are undertaken. Depending on your circumstances, this expenditure may be more suitable in the current financial year given the difference in tax rates starting 1 July 2024.

Selling an asset liable for CGT also needs to be reviewed to determine the most appropriate financial year for the best tax outcome.

Other investment strategies that may need to be revisited include those involving making contributions into your super account.

If you are considering bringing forward tax-deductible personal super contributions, making carry-forward concessional contributions, or salary sacrificing additional amounts before 30 June, you should seek advice to ensure the timing of your strategy still makes sense.

If you would like help with reviewing your investment strategies or superannuation contributions considering the government’s new tax rules, contact our wealth team today.

 

i. https://treasury.gov.au/sites/default/files/2024-01/tax-cuts-government-fact-sheet.pdf 

More insights

Tax Alert March 2024

Tax Alert March 2024

New controls for ATO Online and tax charges non-deductible. Following the use of stolen personal data to access ATO Online accounts, the federal government has tightened access rules to online tax accounts as part of an increased focus on the vulnerability of small...

read more
Tax Alert December 2023

Tax Alert December 2023

The ATO is getting back to business. The lenient approach taken by the ATO during the pandemic is over, with its focus now returning to traditional debt collection. With several key areas under the spotlight, some small businesses should consider taking advantage of...

read more