Australian Prime Minister Anthony Albanese has announced proposed tax changes to address the ongoing cost of living pressures, with Australia’s 13.6 million taxpayers receiving a tax cut from 1 July 2024, compared to the tax they paid in 2023-24.
Now is the time to consider how the new rules will impact your end-of-financial-year planning effective from 1 July 2024.
The Federal Government recently announced changes to the third stage of a series of tax reforms introduced by the previous Coalition government almost six years ago, designed to deliver tax cuts to most, simplify the tax system and protect middle-income earners from tax bracket creep.
The proposed changes
The new rules will see the current lowest tax rate reduced from 19% to 16% and the 32.% marginal tax rate reduced to 30% for individuals earning between $45,001 and $135,000.
The current 37% marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45% rate will now apply to income earners with taxable incomes exceeding $190,000.
In addition, the low-income threshold for Medicare levy purposes will be increased for the current financial year (2023-24).
A single taxpayer with a taxable income of $190,000 paid $59,967 tax in 2023-24. Under the revised rules, they will now pay $55,438 tax, a tax cut of $4,529. While still a reduction in tax paid, this compares with the $7,575 tax cut received if the original Stage 3 tax cuts had proceeded.
On the other hand, low-income earners will receive a bigger tax cut under the revised rules.
A single taxpayer with a taxable income of $40,000 who paid $4,367 in tax in 2023‑24 would have received no benefit from the original Stage 3 tax plan but will now receive a tax cut of $654 under the revised rules.
Effects on investment strategies
For high-income earners, the key takeaway from the government’s new tax rule changes is that you will now receive a lower amount of after-tax income than you may have been expecting from 1 July 2024.
This reduction makes it sensible to revisit any investment strategies you had planned to take advantage of your larger tax cut to ensure they still stack up.
For example, the smaller tax cut for some may impact the effectiveness of property investment.
However, investment strategies such as negative gearing into property or shares may become more beneficial. Particularly for investors close to the new tax thresholds and looking for opportunities to avoid moving onto a higher tax rate
Timing expenditure and contributions
Investors considering repairs or maintenance for an existing investment property should revisit when these activities are undertaken. Depending on your circumstances, this expenditure may be more suitable in the current financial year, given the difference in tax rates starting 1 July 2024.
Selling an asset liable for CGT also needs to be reviewed to determine the most appropriate financial year for the best tax outcome.
Other investment strategies that may need to be revisited include those involving making contributions into their super account.
If you are considering bringing forward tax-deductible personal super contributions, making carry-forward concessional contributions, or salary-sacrificing additional amounts before 30 June, speak with your local Nexia Adviser to ensure the timing of your strategy still benefits you.
Next steps
If you would like help reviewing your investment strategies or superannuation contributions to navigate these changes, speak with your Nexia Adviser today to help you unlock your true potential.
