Changes to tax cuts from 1 July

The Government has passed legislation to amend the tax cuts which apply from 1 July this year. The changes are explained below, along with some things you may wish to think about to help maximise your savings.

What’s changing? 

The ‘Stage 3 tax cuts’ were already law and due to come into effect on 1 July 2024. The recent amendments to the scheduled tax cuts change some of the personal income tax rates, as well as the income brackets that certain tax rates apply to. The tax-free threshold (which is the amount of income that you can earn before tax is payable), will remain at $18,200. Compared to the original tax cuts, the changes: ▪ reduce the 19% tax rate to 16% ▪ reinstate the 37% tax bracket (which was going to be removed from 1 July), but increase the income band to which this applies from $120,000 to $135,000, and ▪ decrease the threshold above which the 45% tax rate applies, from $200,000 to $190,000. The following table compares the tax rates for the current financial year with both the original Stage 3 tax cuts, and the new rates which are now law.

How will I receive the savings? 

The changes to the tax rates will reduce the amount of tax that’s withheld from certain payments made to you.  For example, employers and superannuation providers who pay you an income stream will make adjustments  to the amount of tax withheld from these payments. This will result in incremental tax savings throughout the  year. You don’t need to make changes to the way that you complete your tax return. 

How much tax will I save? 

The amount of tax that may be saved at different levels of taxable income is summarised in the table below.  You can also access a calculator on the Treasury website which estimates tax savings under the modified  tax rates, compared to the tax payable in the current financial year. 

What should I be thinking about as a result of the changes? 

There’s no doubt that times are tough. With interest rate rises impacting loan repayments and other cost of living pressures, the tax savings may offer a great helping hand when it comes to meeting day to day expenses. However, there are strategies you may wish to think about and discuss with your financial planner, which could further boost the overall benefit of the savings. 

Make your super work harder for you 

One of the great things about superannuation is that there are so many ways to contribute, and even small contributions, such as those that attract a Government co-contribution, can make a big difference over time. Also, as your life and financial circumstances change, you can change your contributions strategy. That way, you can achieve what’s important to you and your family today, while still building your super nest egg. 

There are even some ways you can contribute to super, which may provide additional tax benefits. For example, if you’re eligible, you can make voluntary after-tax contributions to super and claim a tax-deduction for these amounts. These are known as ‘personal deductible contributions’. Or you can make super contributions for your low-income spouse and benefit from aTo learn more about some of the different ways you could contribute, see our ‘Smart super strategies’ guide. It’s important to remember that once you contribute to super, you can’t access the funds until you meet a condition of release. This is usually when you retire, or meet other conditions which provide access to certain amounts, such as under the First Home Super Saver Scheme, or under financial hardship. 

Consider the timing of your contributions 

Were you thinking of making extra super contributions before the end of this financial year? You should consider the impact the newly legislated tax rates may have on the potential tax benefits. For example, if your marginal tax rate is still going to decline in 2024/25, you may gain a greater benefit by making a personal deductible contribution before 30 June this year. Conversely, if your marginal tax rate won’t change in 2024/25, the tax benefit from making a personal deductible contribution will be the same this financial year and next. 

Thinking about selling assets? 

Consider the timing Are you thinking of selling assets that would create a capital gain? If your marginal tax rate is going to be lower in 2024/25, you may pay less capital gains tax (CGT) by selling after 1 July this year. 

But before you decide to defer any asset sale, it’s important to consider: 

▪ market risk (the value of the asset could decline and offset or eliminate any tax benefit from selling next financial year),  and 

▪ holding costs, which for real property may include rates, insurance and interest payments. 

Review the timing of your tax-deductible expenses including pre-paid expenses 

Some expenses that you pay, including certain pre-paid expenses, are tax deductible.   Pre-paying eligible expenses can be a helpful way to manage your tax. As a result of the change to the tax cuts from 1 July, you could consider whether the benefit of a tax deduction for eligible expenses is more valuable in the current financial year, or from 1 July 2024. This will depend on a couple of factors, including your assessable income, your marginal tax rate and the resulting value of the tax deduction. 

Examples of deductible expenses that may be pre-paid include: ▪ premiums on an income protection policy held outside super ▪ interest on a fixed rate investment loan ▪ expenses for a rental property, and ▪ work related subscriptions. If you were planning to bring forward payment of eligible expenses (and therefore the associated deduction) to optimise your tax savings, you may need to review this strategy to work out the amount you save as a result of the changes. 

For additional information on prepaid expenses, refer to the ATO website and confirm the deduction available with your registered tax agent. 

Next steps 

To find out more about the changes from 1 July and to understand more about which strategies could help to making your savings go even further, speak to your financial adviser. tax offset to reduce the tax you pay.

Important information and disclaimer 

This document has been prepared by Actuate Alliance Services Pty Ltd (ABN 40 083 233 925, AFSL 240959) (‘Actuate’), a member of the Insignia Financial  group of companies (‘Insignia Financial Group’). Information in this document is general advice only and does not consider the financial objectives, financial  situation or needs of any particular investor. Before acting on the information in this document, you should assess your own circumstances or seek personal  advice from a licensed financial adviser. If this document is provided to you in conjunction with a Statement of Advice (‘SOA’), any personal financial advice  relevant to the financial planning concept/strategy referred to in this document will be contained in that SOA. Information in this document reflects our  understanding of legislation, rulings etc as at the date of issue 28 February 2024, and may be subject to change. While it is believed the information is accurate  and reliable, this is not guaranteed in any way. Examples are illustrative only and are subject to the assumptions and qualifications disclosed. If any financial  product is referred to in this document, you should consider the relevant Product Disclosure Statement or a Target Market Determination before deciding to  acquire or dispose of an interest in that financial product. 
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Disclaimer: The information contained in this document is based on information believed to be accurate and reliable at the time of publication. Any illustrations of past performance do not imply similar performance in the future. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this newsletter. This information is of a general nature only. It is not intended as personal advice or as an investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs.