Tax changes: How will these affect me?

Prime Minister Anthony Albanese has 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 to your pocket and what implications it may have for end of financial year planning as a result of the new rules, due 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, which 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% to 16% and the 32.5% marginal tax rate reduced to 30% for individuals earning between $45,001 and $135,000.

The current 37% marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45% 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 tax in 2023-24. Under the revised rules, they will now pay $55,438 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 202324, 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 take-away from the government’s new changes to the tax rules is 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 from your larger tax cut to 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 Capital Gains Tax (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 financial sense.

If you would like help with reviewing your investment strategies or superannuation contributions in light of the new rules, please contact us today.i

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

Information contained in this document is considered to be true and correct at time of publication. In addition, the information provided is general information only, and does not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.

Clear Sky

Level 9, Corporate Centre 2, 1 Corporate Court, Bundall, QLD 4217
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1300 640 899

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Clear Sky Financial Pty Ltd (ABN 36 634 263 148) is a Corporate Authorised Representative No.1299668 of InterPrac Financial Planning Pty Ltd (Australian Financial Services Licence Number 246638). Information contained in this website may not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.

Clear Sky Financial Pty Ltd (ABN 36 634 263 148) is a Corporate Authorised Representative No.1299668 of InterPrac Financial Planning Pty Ltd (Australian Financial Services Licence Number 246638). Information contained in this website may not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.