What are Stage Three Tax cuts?
The Federal Government's Stage 3 tax cuts mean more borrowing power for home buyers, and property owners might shorten their mortgage terms.
Understanding Your Tax Cuts
Tax cuts are a change to individual income tax rates and thresholds that reduce a taxpayer’s tax liability (the amount of individual income tax a person needs to pay).
This is different from a tax refund, which is the money you receive back from the Australian Taxation Office (ATO) if you paid more tax than you need to when you submit your tax return at the end of a financial year.
Starting this financial year, the Stage 3 tax cuts will take effect, improving borrowing capacities for many Australians. These cuts reduce the 32.5% tax bracket to 30% and raise the 37% threshold from $120,000 to $135,000. Labor's adjustments to the Stage 3 tax cuts will inject an extra $84 billion into low and middle-income earners over the next decade, doubling the tax cuts for the average income earner.
All 13.6 million Australian taxpayers will benefit.
For most Australians, the extra money will help alleviate cost-of-living pressures. For others, it offers opportunities to invest, save for a home, or prepare for retirement.
The Benefits
Reduced taxes significantly increase borrowing capacity, offering more lender options in today's challenging market. They also enhance serviceability, providing more freedom to move to a better position with another bank.
Zooming in:
- The income tax rate between $18,201 and $45,000 drops from 19% to 16%.
- For incomes between $45,001 and $135,000, the rate decreases from 32.5% to 30%.
- Higher-income earners will also benefit, with the 37% tax rate threshold rising to $135,000 and the 45% rate applying to incomes over $190,000.
These changes will increase take-home pay, potentially boosting borrowing capacities by tens of thousands of dollars.
Key Changes
- Simplified Tax System: The number of tax brackets has been reduced from five to four, making it simpler and easier to understand.
- Increased LMITO: The Low and Middle-Income Tax Offset increases from $1,080 to $1,500, providing additional tax relief.
Learn more about the tax cuts and what they mean for you on the Treasury website, or estimate your tax cut using the Taxcuts calculator.
Helping Priya
Priya lives in regional Australia. She earned $90,000 and paid $21,517 income tax, including the 2 per cent Medicare levy in 2023–24. On the same salary, Priya will get an annual tax cut of $1,929 in 2024–25. Priya's tax cut will be reflected in her take-home pay, each payday.
This is a fictional example and does not represent any of the people depicted on this website.
Looking Ahead
These tax cuts will likely delay any interest rate cuts by the RBA this year. Our prediction remains Q2 2025 if the data supports it, with a risk of a further rate rise if not.
We're Here for You
Whether you're saving for a home or buying your first one, we support you every step of the way:
- Buying your first home
- Refinancing your home loan
- Investing in property
