The Stage 3 Tax Cuts as described in this article is out of date. The actual cuts as passed by Parliament are the following.
- The 19% tax rate was reduced to 16%.
- The 32.5% tax rate was reduced to 30%.
- The 37% tax rate applies to every dollar between $135,000 and $190,000.
- The 45% tax rate applies to every dollar above $190,000.
A person on
Stage Three Tax Cuts
From 1 July 2024, the 32.5% tax bracket will be dropped to 30% and the 37% bracket is removed, such that the marginal tax rate on incomes between $45,000 and $200,000 will be 30%. The threshold above which the top bracket of 45% applies will be increased from $180,000 to $200,000.
The graph below shows the tax liability of an individual as a percentage of their income. This is known as effective tax rate.
A person on
Notice that Stage Three has no effect on anyone earning below $45,000 and produces greater tax reductions on higher income earners. After $200,000, the maximum tax cut available is reached at $9,075.
The graph below shows the tax reduction received at various income levels, along with annualised median incomes from the Australian Bureau of Statistics.
Lower and Middle Income Tax Offset Phase-out
The Personal Income Tax Plan (PITP) was introduced in the 2018-19 Budget and comprises three stages:
- Stage one increases the threshold above which the 37% marginal rate applies from $87,000 to $90,000 and introduces the low and middle income tax offset (LMITO)
- Stage two increases the threshold above which the 37% marginal rate applies from $90,000 to $120,000 and increases the existing low income tax offset (LITO). The LMITO was planned to be abolished since these changes "lock in" the tax reductions.
- Stage three combines the 32.5% and 37% brackets into a single 30% bracket that applies to taxable income between $45,000 and $200,000. Income over $200,000 is taxed at a 45% marginal rate.
As an economic stimulus measure, the LMITO was extended in 2020-21 and 2021-22 resulting in an additional tax reduction. The LMITO was also increased by $420 for the 2021-22 income year.
The LMITO has been phased out and will not be available in the 2022-23 income year. This means that, all other things being equal, some people will see an increase in their tax bill when compared between 2021-22 and 2022-23 income year.
A person on