When the laws change on 1 July this year, Australians earning $190,000 are set to enjoy a financial windfall of approximately $4,500pa. That’s an additional $375 every month in the pockets of those earners and it’s all thanks to Government’s recently revised Stage 3 Tax Cuts which will implement new, and lower tax rate thresholds.
Intended by the Government to help with cost of living pressures, it could very easily disappear into day-to-day expenses OR it could be used with greater purpose and potentially, give your personal wealth a very significant boost.
Stage 3 Tax Cuts passed by the Morrison Government back in 2019, then revised by the Albanese Government in January this year, commence 1 July 2024.
These measures increase the level at which lower tax rates apply, and extend the second highest tax rate of 37% to income up to $190,000.
| Current 1 July 2023 to 30 June 2024 | NEW 1 July 2024 to 30 June 2025 | ||
| Taxable Income | Marginal Tax Rate | Taxable Income | Marginal Tax Rate |
| $0 – $18,200 | Nil | $0 to $18,200 | Nil |
| $18,201 to $45,000 | 19% | $18,201 to $45,000 | 16% |
| $45,001 to $120,000 | 32.5% | $45,000 to $135,000 | 30% |
| $120,001 to $180,000 | 37% | $135,001 to $190,000 | 37% |
| $180,001+ | 45% | $190,001+ | 45% |
It must be noted, the 2% Medicare Levy still applies and this must be added to tax paid across each bracket.
The government expects some 95% of the population to benefit from these tax cuts and this begs the question: How can you make the most of this opportunity?
It’s money you’ve never had before so it’s not as if you’d miss it if you took advantage of options others than spending it.
$4.5K is a fairly significant amount and $9K is even more so in a household where you might be one half of a couple earning $190K+ each.
While I can completely understand how tempting it would be to spend this extra cash on a holiday or putting it towards a new motor vehicle, the less fun but significantly more valuable options are to pay down debt, invest or contribute to superannuation.
I’m having discussions with my clients now about how they plan to use the extra money that will appear in their salary from 1 July.
For example, it’s a common financial planning strategy for younger people with home loans to focus on paying down their debt now, rather than contributing extra to superannuation for retirement decades in the future.
Assuming your current home loan repayment strategy is manageable, some or all of the tax cut money could be contributed to superannuation as salary sacrifice or even as after-tax contributions to superannuation.
The point is: The $4.5K is money in your pocket that you’ve never had, and it could be added year on year to your superannuation balance, where it would earn compounding interest that could significantly increase your personal wealth and retirement options later in life, without any financial discomfort to you whatsoever.
Rather than settling for taking the default position where this extra cash ends up in your bank account, we encourage you to consider how it could be used to your advantage.
For example, if you or your spouse are expecting to earn between $18,000 and $190,000 for the financial year ending 30 June 2024, and you’re eligible to use catch up concessional contributions, it may be more advantageous to make the ‘catch up’ contribution before 30 June 2024 as potentially it could provide higher tax benefits than waiting until after 1 July 2024.
Of course, contributing more to super may be a sound strategy for some, but it’s not the only option for making the most of this tax cut windfall.
To learn more, please contact James Marshall for a 20-minute no obligation discussion. You can call James on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au
To learn more about James, visit this link.
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