Australia's Stage 3 Tax Cuts from 1 July 2024

Are you ready for a major change in your personal finances? Effective from 1 July 2024, Australia is officially implementing a new individual income tax framework, marking the most significant tax adjustment in many years.

This reform is driven by the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024, which the Australian Government passed on 25 January 2024. The core objective is to ease the burden of the Cost of Living and help Australian workers keep more money in their pockets. These new tax rates and income thresholds will officially take effect from 1 July 2024 (for the 2024–25 financial year).

I. The New Individual Income Tax Framework (Effective 1/7/2024)

The new tax framework streamlines and adjusts both the tax rates and income thresholds, delivering tax cuts that will affect almost all Australian taxpayers.

Below is the summary table of the New Individual Income Tax Brackets applicable from 1 July 2024:

Changes on tax from 1/7/2024

Taxable Income Bracket	Tax Rate
$0 – $18,200	0%
$18,201 – $45,000	16% (Reduced from 19%)
$45,001 – $135,000	30% (Reduced from 32.5%)
$135,001 – $190,000	37% (Threshold Increased)
Above $190,000	45% (Threshold Increased)

(Note: This table excludes the Medicare Levy.)

II. Detailed Analysis of Key Changes and Impact

1. Significant Tax Rate Reductions

The most notable changes are the rate reductions:

• The 19% rate (for income from $18,201 to $45,000) is reduced to 16%.

• The 32.5% rate (for income from $45,001 up to $120,000 under old laws) is reduced to 30%.

These rate cuts provide the biggest proportional benefit to middle-income earners.

2. Higher Income Thresholds for Upper Brackets

The government also adjusted the income thresholds for the higher tax brackets, reducing the tax burden for higher-income earners:

• The threshold for the 37% tax rate is increased from $120,000 to $135,000.

• The threshold for the 45% tax rate (the highest rate) is increased from $180,000 to $190,000.

3. End of the LMITO

The Low and Middle Income Tax Offset (LMITO) has now ended. While some taxpayers lose this offset, most still come out ahead thanks to the lower base tax rates.

4. Medicare Levy Reminder

Most taxpayers will continue to pay a 2% Medicare Levy on taxable income (above approximately $26,000 for singles).This amount is reviewed each year and ensures low-income earners remain exempt

III. How Much Will You Save?

To help you visualise the financial impact, let's look at two practical examples (comparing only the income tax liability, excluding the retired LMITO):

4.1. Example 1: Middle-Income Earner

• Scenario: Annual income of $80,000.

• Tax Saving:

  • Under the new system, the total tax liability for an income of $80,000 is approximately $14,788.

  • Under the old system (pre-LMITO), the liability was approximately $16,467.

  • Result: With an income of $80,000, you will save approximately $1,679 in the new financial year.

4.2. Example 2: High-Income Earner

• Scenario: Annual income of $150,000.

• Tax Saving:

  • Under the new system, the 37% tax rate only starts from $135,001 (compared to $120,001 previously).

  • Result: An individual earning $150,000 will save approximately $3,750 in tax each year.

IV. Impact on Seniors and Pensioners (SAPTO)

The tax changes also lead to adjustments in the income thresholds applied to the tax offset available for seniors and pensioners.

5.1. What is SAPTO?

SAPTO (Senior Australian and Pensioner Tax Offset) is a special tax offset for eligible older Australians and pensioners, designed to significantly reduce the amount of income tax they are required to pay.

The Australian and Pensioner Tax Offset

5.2. New SAPTO Thresholds (From 1/7/2024)

Status	Maximum Tax Offset	Shade out threshold	Cut-out threshold
Single	$2,230	$34,919	$52,759
Each partner of a couple	$1,602	$30,994	$43,810
Each partner of an illness separated couple	$2,040	$33,732	$50,052

V. Conclusion

The individual income tax changes effective from 1 July 2024 are excellent news, delivering significant financial benefits to the vast majority of Australian taxpayers. This is a deliberate move to support people dealing with the rising cost of living.

To understand the exact tax implications for your specific financial circumstances (including other offsets, levies, and concessions), we strongly encourage you to consult a qualified tax professional. You may also refer directly to the legislative text: Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024.