You’ve probably heard about the incoming Stage 3 tax cuts, but do you know how these will affect you? And do you have a plan for what you’ll do if you end up with a bit extra in your take-home pay?
What are the Stage 3 tax cuts?
The Stage 3 tax cuts were first legislated in 2018 as part of the Coalition government’s three-part Personal Income Tax Plan, which was designed to reduce Australians’ personal income tax rates gradually over a seven-year period.1
In its original form, Stage 3 of this plan was set to deliver higher tax cuts to Australians on higher incomes. The plan was eventually passed by Parliament in 2018.
Despite receiving parliamentary approval, Stage 3 of the plan remained controversial and in January 2024, the current Labor government unveiled an amended plan which delivered additional tax relief to lower income earners. This is the version set to be implemented in July 2024.
Many high-income earners will still receive a tax cut under this revised plan, however the size of that cut may be smaller than it would previously have been.
How much tax will I be paying under this plan?
Stage 3 of the Personal Income Tax Plan will see the lowest tax rate, 19%, lowered to 16% and the 32.5% tax rate lowered to 30%.
Initially, the 37% tax rate was set to be abolished under Stage 3 and anyone earning between $45,001 and $200,000 would have been taxed at 30% instead. The revised plan has instead retained the 37% rate for those earning between $135,001 and $190,000.
Anyone earning more than $190,000 will continue to be taxed at 45%.
These changes are expected to give every taxpayer a tax cut, with those who $190,000 or more receiving the maximum tax cut of $4,529.
The table below breaks down each tax rate under the new system by income level, as well as the estimated share of taxpayers that fall into each group.
Annual Income |
Tax rate under Stage 3 |
Estimated % of taxpayers in bracket (2024-25) |
| 0 – $18,200 | 0% | 12.9% |
| $18,201 – $45,000 | 16% | 24.6% |
| $45,001 – $135,000 | 30% | 49.7% |
| $135,001 – $190,000 | 37% | 7.3% |
| $190,001 and over | 45% | 5.5% |
Source: Grattan Institute2
What does this mean for me?
The good news is that anyone earning up to about $145,000 will receive a tax cut equal to or greater than the one originally legislated back in 2018. That’s roughly 90% of Australian taxpayers.2
For many, this relief will help to offset rising cost-of-living pressures and take some of the sting out of the weekly shop.
For others, however, these cuts represent a new opportunity to grow their wealth by contributing to their super fund, which can be particularly tax effective when contributions are made via salary sacrifice.
The salary sacrifice rules allow workers to make additional contributions on top of their super guarantee out of their pre-tax income. These payments are made to your fund directly by your employer, and you’ll need their agreement to contribute this way.
But as most Australians’ personal income tax rates are higher than the tax paid on super money, it can be a smart strategy for boosting retirement savings.
Source article: Colonial First State
- P Hawkins, ‘Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018’, Parliament of Australia, 15 June 2018, accessed 26 February 2024
- B Coates, J Moloney, ‘Albanese’s tax-cut plan: who wins and who loses, now and in the future?’ Grattan Institute, 4 February 2024, accessed 26 February 2024
