The upcoming tax cuts in 2024 are set to bring significant changes for Australian buyers and investors.
Most Australian tax payers will now have their tax rates reduced and be able to take home more of their monthly income.
With tax rates and thresholds shifting, anyone in the property market should understand how these changes impact your annual taxable income and overall tax liability.
Today, we’ll go through the tax system and prepare effectively for the financial year starting on 1 July 2024.
What Are the Upcoming Tax Cuts?
The proposed tax cuts have been a hot topic in the federal budget. These tax cuts aim to provide tax relief to 13.6 million Australian taxpayers.
The government plan is designed to address cost of living pressures and ensure middle income earners benefit significantly.
3 Key Changes in Tax Rates and Thresholds
From 1 July 2024, several changes in individual income tax rates will take effect:
- 32.5% tax rate will be reduced to 30%.
- 37% tax rate will be eliminated.
- The top 45% tax rate will apply from $200,000 instead of $180,000.
| Taxable Income ($) | 2023-24 Tax Rate (%) | 2024-25 Tax Rate (%) |
| 18,201 – 45,000 | 19 | 19 |
| 45,001 – 120,000 | 32.5 | 30 |
| 120,001 – 200,000 | 37 | 30 |
| 200,001 and above | 45 | 45 |
These adjustments are intended to simplify the tax system and make it more equitable. The changes also aim to prevent bracket creep, where inflation pushes taxpayers into higher tax brackets without an increase in real income.
Detailed Breakdown of Tax Cuts
- 32.5% Tax Rate Reduced to 30%: This reduction benefits those earning between $45,000 and $120,000. It means lower taxes and more money in your pocket.
- Elimination of 37% Tax Rate: This rate currently affects those earning between $120,000 and $180,000. Its removal simplifies the tax system and reduces the tax burden on middle income earners.
- Top 45% Tax Rate: Now applied to incomes over $200,000, up from $180,000. This shift benefits higher earners, allowing them to keep more of their income.
Additional Changes for 2024
1. Extension of the First Home Guarantee
The First Home Guarantee has been extended to support more first-home buyers. This scheme allows eligible buyers to purchase a property with a deposit as low as 5% without needing to pay Lenders Mortgage Insurance (LMI).
- Low Deposit: Buy with just a 5% deposit.
- No LMI: Avoid costly Lenders Mortgage Insurance.
- Eligibility: Must be a first-time buyer meeting income thresholds.
- Price Caps: Property must be within the set price limits.
2. $300 Energy Bill Rebates
To reduce electricity costs, the government is offering a $300 rebate on energy bills for households.
- Save on Bills: Get $300 off your electricity bill.
- Household Relief: Helps manage rising energy costs.
- Simple Process: Easy application through your energy provider.
Impact of Tax Cuts on Home Buyers
The tax cuts are poised to have a significant impact on home buyers, making it an opportune time to consider purchasing property.
The reduction in individual income tax rates translates to more disposable income, which can be directed towards buying a home.
Here’s how the changes will help home buyers:
- Increased Borrowing Capacity: With the 32.5% tax rate reduced to 30%, and the elimination of the 37% tax rate, many middle income earners will have higher net incomes. This increase can enhance your borrowing capacity, making it easier to secure a mortgage for a home purchase.
- Lower Monthly Payments: The extra disposable income resulting from tax cuts means you may have more funds available to put towards your mortgage payments. This can potentially reduce the strain of monthly repayments and make homeownership more affordable.
- First-Time Home Buyer Incentives: In addition to the tax cuts, the Australian government offers various grants and schemes for first-time home buyers. With more money in your pocket due to lower tax rates, you can maximise these incentives and benefits.
Impact on Cost of Living
The tax cuts 2024 are part of a broader strategy to address cost of living pressures. By reducing the tax burden, the Australian government aims to increase disposable income, which can help households manage rising costs in areas like housing, utilities, and groceries.
Impact on Different Income Groups
Low income earners will benefit from an increased low income tax offset. This offset is designed to reduce the tax liability for individuals with a taxable income up to $66,667.
Middle income earners will see the most significant changes. With the 32.5% tax rate reduced to 30% and the removal of the 37% tax rate, this group stands to gain the most in terms of tax relief.
For those earning between $120,000 to $200,000, the reduction means more disposable income and less tax payable.
Preparing for the Changes
To prepare for these 2024 tax cuts, buyers and investors should consider the following steps:
- Review Your Income: Assess your current annual taxable income to understand which tax brackets you fall into under the new tax rates.
- Adjust Withholding: Ensure your employer is aware of the new tax rates so they can adjust your withholding tax accordingly. This can help avoid any surprises in your tax return.
- Investment Strategies: Reevaluate your investment strategies to take advantage of the tax cuts. With lower tax rates, certain investments may yield better after-tax returns.
Special Considerations for Investors
Investors need to be aware of how these changes impact their tax liability:
- Capital Gains Tax (CGT): The lower income tax rates can affect the amount of CGT you pay. With a lower overall tax rate, your CGT may also be reduced.
- Dividend Income: If you receive dividends, the reduced tax rates can increase your after-tax income. This is especially beneficial for those heavily invested in dividend-paying stocks.
Looking Ahead
These tax cuts are expected to stimulate the economy by increasing consumer spending. More disposable income means more spending on goods and services, which can drive economic growth.
For buyers and investors, understanding these changes and planning accordingly can maximize the benefits of the new tax rates. As we approach 1 July 2024, staying informed and prepared will ensure you make the most of these tax cuts.
FAQs
Q: How do the new tax rates affect my tax return?
A: The new tax rates will change how much tax is withheld from your pay. It’s important to adjust your withholding with your employer to reflect the new rates, ensuring you don’t overpay or underpay taxes.
Q: What is bracket creep, and how do these tax cuts address it?
A: Bracket creep occurs when inflation pushes incomes into higher tax brackets, increasing tax liability without an actual increase in real income. These tax cuts aim to reduce the impact of bracket creep by adjusting tax brackets and rates.
Q: Will the 45% tax rate apply to my income?
A: The top 45% tax rate will now apply to incomes over $200,000, up from $180,000. If your income exceeds $200,000, you will be subject to this rate.
Q: How can I benefit from the low income tax offset?
A: The low income tax offset is designed to reduce tax for low-income earners. If your taxable income is below $66,667, you can benefit from this offset, reducing your overall tax payable.
Q: What should I do to prepare for these changes?
A: Review your current income, adjust your tax withholding, and reassess your investment strategies. Being proactive can help you take full advantage of the tax cuts 2024.
Q: How do these tax cuts help with the cost of living?
A: By reducing the overall tax burden, these cuts increase disposable income, helping households manage rising costs in essential areas such as housing and groceries.
