The Government is tinkering…. again.
In the ever-evolving landscape of taxation, understanding the implications of government policies on your financial well-being is crucial. One such recent development is the Stage 3 tax cuts that come into effect from July 1st, 2024, promising relief for taxpayers across all income brackets. Whilst some tax relief is most certainly welcome, in typical Aussie style the changes have ended up a yet another political farce, and all of the backflips make it a bit difficult to keep up! Rest assured, as Tweed Heads leading accounting and financial planning business we’re here to help break down the changes and make sure you’re empowered to make informed decisions about your finances.
The Stage 3 Tax Cuts:
The Stage 3 tax cuts, which kick in from July 1st, 2024, mark a significant shift in the Australian taxation framework. These cuts originally aimed to simplify tax brackets and provide financial relief to Australians by reducing the overall tax burden. Well, since the government tinkering the tax brackets didn’t really get simplified, but the good news is, in the words of our Prime Minister “everyone gets a tax cut”… it may just me more or less than it was going to be depending on how much you earn. Let’s delve into the specifics by illustrating the impact of these cuts on various income levels.
Table: Impact of Stage 3 Tax Cuts
| Taxable Income | Tax Payable (2023 – 2024) | Tax Payable (2024 – 2025) Original | Tax Payable (2024 – 2025) Revised | Tax saving vs current rates | Difference between original and revised stage 3 tax cuts |
| $60,000 | $11,067 | $10,692 | $9,888 | $1,179 | $804 |
| $90,000 | $21,517 | $20,392 | $19,588 | $1,929 | $804 |
| $120,000 | $31,867 | $29,992 | $29,188 | $2,679 | $804 |
| $180,000 | $55,267 | $49,192 | $51,538 | $3,729 | ($2,346) |
| $250,000 | $92,292 | $83,217 | $87,763 | $4,529 | ($4,546) |
*Note: Tax calculations are based on the latest available information at the time of writing and may be subject to change.
What does it mean for you?:
Everyones circumstances are unique, so whilst there is all of this great stuff we can do with free cashflow its important to allocate savings to the things that are going to help you achieve your unique financial goals. For some people that might mean the funds get saved, for some people that might mean the funds get spent, and for others, it may get given away to kids, or even your favourite charity. The difficult thing of course is know whether you’re on track, or off track
So, with that said, let’s have a closer look at the options for Tax payers of various incomes.
- $60,000 Taxable Income: For an individual earning $60,000, the tax cuts result in a $1,179 reduction in tax payable compared to the current financial year. This increased take-home pay opens up various avenues for financial planning, such as allocating funds towards extra mortgage payments, building an investment portfolio, or contributing to superannuation for additional tax savings. Even though it might not seem like a huge amount, you’ll be shocked at the difference doing something smart with this saving can make over time – compound interest is the 8th wonder of the world (Albert Einstein).
- $90,000 Taxable Income: Similarly, at the $90,000 income level, taxpayers can benefit from reduced tax liabilities – in this case, $1,929. On this slightly higher level of tax savings, it could turn into a nice little children’s savings or investment plan, or be salary sacrificed into super to bolster your nest-egg and pick up additional tax savings.
- $120,000 Taxable Income: Individuals earning $120,000 will notice a reduction in their tax obligations to the tune of $2,679, providing an opportunity to reassess and optimize their financial strategies. Whether it’s focusing on mortgage reduction or diversifying investments, the revised tax cuts offer a chance to enhance overall financial health. At this level of income, super contribution strategies can be very tax-effective, so if you can afford to allocate your tax savings to wealth creation, get in touch to have a talk about the right mix of strategies for you.
- $180,000 Taxable Income: At the $180,000 income level, the impact of tax cuts is more substantial at $3,729. This presents an ideal moment for high-income earners to consider advanced financial planning strategies, such as exploring sophisticated investment vehicles or maximizing contributions to superannuation for long-term tax benefits. Tax planning strategies for earners at this level of income have the largest impact, so if your aim is to save tax and build wealth, don’t let lifestyle creep gobble up your tax savings.
- $250,000 Taxable Income: For those with a taxable income of $250,000, the Stage 3 tax cuts contribute significantly to reducing the tax burden, with a saving of $4,529 vs the current financial year. This presents an opportune time to consult with Saul or Lisa to devise a comprehensive plan that optimizes tax savings while ensuring financial stability.
Maximizing Financial Opportunities:
With the extra savings generated from the revised tax cuts, individuals can explore various avenues to strengthen their financial position. Here are three key options to consider:
Extra Mortgage Payments: Allocating additional funds towards mortgage repayments can lead to significant interest savings over the life of the loan. This not only accelerates the path to homeownership but also provides financial security in the long run. Did you know that at current interest rates if you only pay the minimum on your mortgage, you will pay the bank more in interest than you borrowed in the first place. You will effectively pay for your house twice!!!
Building or Adding to an Investment Portfolio: Investing in a diversified portfolio can be a prudent way to grow wealth over time. The revised tax cuts offer an excellent opportunity to kickstart or expand an investment portfolio, providing potential returns that contribute to long-term financial goals. Before getting started, Its really important to get the right advice – Many people embark on an investment strategy with the intention to save tax and build wealth, but end up causing themselves stress, cashflow issues, and unintended tax issues in the future. By carefully considering your optimal ownership structures, including the use of structures such as Trusts, Companies, or Investment Bonds) we can ensure your strategy is designed to minimise tax, maximise your long-term investment returns, increase asset protection, and minimise risk.
Contributions to Superannuation: Making additional contributions to superannuation can enhance retirement savings and provide significant tax advantages…. but of course there are trade-offs to consider. High-income earners, in particular, can leverage the revised tax cuts to maximize their super contributions, ensuring a more secure financial future. A well designed Superannuation plan can make an extraordinary difference to the quality of your retirement, but just like the government has been tinkering with tax rates, they have done plenty of tinkering with Super over time too. It’s absolutely critical to be armed with the latest info and strategies so that you can minimise risk, and make the most of the incredible opportunities that exist within the super environment.
So, whilst the Stage 3 tax cuts should deliver a nice little windfall, or just some cost-of-living releif for some, it’s crucial to view these changes as an opportunity to optimize your financial strategies if you can afford to. Whether you choose to channel the savings into extra mortgage payments, bolster your investment portfolio, or contribute to superannuation, the revised tax cuts pave the way for a more secure and prosperous financial future.
If you want to discuss how the stage 3 tax cuts impact you, or if you’d like to discuss opportunities for further tax savings and wealth creation opportunities, book in a 15 minute discovery call today!