Personal tax rates: Stage 3 (as revised) confirmed from 2024–2025
In the 2024–2025 Federal Budget, the Government did not announce any further changes to the personal tax rates.
The Government’s revised Stage 3 tax changes (as announced on 25 January 2024 and enacted into law by the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024) commence from 1 July 2024. The Treasurer said all 13.6 million taxpayers will receive a tax cut from 1 July 2024. The average annual tax cut is $1,888 (or $36 a week).
The tax rates and income thresholds from the 2024-25 for residents (as already legislated) are:
- taxable income up to $18,200 – nil;
- taxable income of $18,201 to $45,000 – nil plus 16% of excess over $18,200;
- taxable income of $45,001 to $135,000 – $4,288 plus 30% of excess over $45,000;
- taxable income of $135,001 to $190,000 – $31,288 plus 37% of excess over $135,000; and
- taxable income of more than $190,001 – $51,638 plus 45% of excess over $190,000.
This means, when compared to 2023–2024, that for 2024–2025 the 19% tax rate has been reduced to 16%; the 32.5% tax rate has been reduced to 30%; the 37% tax rate threshold has been increased from $120,000 to $135,000; and the 45% tax rate threshold has been increased from $180,000 to $190,000.
Low income tax offset (unchanged)
No changes were made to the low income tax offset (LITO) in the 2024–2025 Budget.
For completeness, and as a reminder, while the low and middle income tax offset (LMITO) ceased from 1 July 2022, low and middle income taxpayers remain entitled to the LITO.
The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
- taxable income of $45,001 to $135,000 – $4,288 plus 30% of excess over $45,000;
- taxable income of $135,001 to $190,000 – $31,288 plus 37% of excess over $135,000; and
- taxable income of more than $190,001 – $51,638 plus 45% of excess over $190,000.
Medicare levy low-income thresholds for 2023–2024
The Medicare levy low-income thresholds for 2023–2024 would normally have been announced in this 2024–2025 Budget. However, the Government released the 2023–2024 Medicare levy thresholds on 25 January 2024 when it announced the changes to the Stage 3 tax cuts. The new thresholds to provide cost-of-living relief were enacted by the Treasury Laws Amendment (Cost of Living – Medicare Levy) Act 2024.
From the 2023–2024 income year, the Medicare levy low-income threshold for singles has been increased to $26,000 for 2023–2024 (up from $24,276 for 2022–2023). For couples with no children, the family income threshold is $43,846 (up from $40,939 for 2022–2023). The additional amount of threshold for each dependent child or student is $4,027 (up from $3,760).
For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold is $41,089 (up from $38,365). The family threshold for seniors and pensioners is $57,198 (up from $53,406), plus $4,027 for each dependent child or student (up from $3,760).
HECS/HELP debt indexation changes
There are no further details contained in the Budget papers on the announced changes to the way that the indexation factor applied to HELP debts will be calculated.
Here is an outline of the recently proposed changes.
A student who receives a HELP loan under any of the student loan schemes has an “accumulated HELP debt” with the ATO. The loan is subject to yearly indexation, but is otherwise interest-free.
Loans that are covered by the system include the following:
- HECS-HELP;
- FEE-HELP;
- OS-HELP;
- SA-HELP;
- Student Start-up Loan (SSL) Scheme;
- ABSTUDY Start-up Loan (ABSTUDY SSL) Scheme; and
- Australian apprenticeship support loan (AASL) scheme (renamed from the Trade Support Loan (TSL) Scheme).
HELP, VSL , SSL and AASL debts are repaid through the tax system (voluntary repayments can be made at any time).
The amount to be repaid each year is a percentage of the taxpayer’s HELP repayment income (and is notified on the income tax assessment for the year). The percentage increases as the HELP repayment income increases. The “HELP repayment income” is effectively the sum of taxable income, reportable fringe benefits total, net exempt foreign employment income, reportable superannuation contributions and total net investment losses.
Indexation is applied to any HECS/HELP debt that’s older than 11 months, once a year on 1 June. The CPI number is currently used to index debts and it was recently announced that debts will increase by 4.7% on 1 June 2024. In addition, inflation pushed the indexation rate for 2022–2023 debts to 7.1%, the highest since 1990. This generated much negativity and the Prime Minister subsequently announced that “there’d be help on HECS” as part of the Budget.
Indexation changes
The Government has flagged two proposed changes (which require legislative amendments to the Higher Education Support Act 2003).
First, the indexation factor will be the lower of the CPI or the Wages Price Index (WPI). The quarterly WPI measures change in the price of wages and salaries in the Australian labour market over time. In a similar way to the CPI, it follows changes in the hourly rate paid to a fixed group (or “basket”) of jobs. More can be found about it on the ABS website.
Second, the change will be backdated to 2022–2023, meaning the new system will apply to the 2022–2023, 2023–2024 and following years (noting again that the factor is applied to debts on 1 June, not 1 July).
The proposal has a number of possible ramifications (which can only be confirmed when the legislation is introduced into Parliament).
As the WPI was lower than the CPI in 2022–2023, the indexation that was applied on 1 June 2023 will be retrospectively cut from 7.1% to 3.2%. This means that students with an outstanding debt will have it reduced with effect from 1 June 2023. Those students who have subsequently paid off their debt based on the 7.1% rate presumably will be eligible for some sort of refund.
The March quarter WPI data is needed to calculate the 1 June 2024 indexation. This is not available until 15 May (the day after the Budget is handed down). The CPI rate is 4.7%, so the WPI rate has to be less for this for it to be applied to debts in place of the CPI rate. So, in summary, the indexation rate to be applied to 1 June 2024 debts is not known at the time of publication.
Energy relief payments extended: small business included
The Government will provide $3.5 billion over three years from 2023–2024 to extend and expand the Energy Bill Relief Fund and provide a $300 rebate to all Australian households and a $325 rebate to eligible small businesses on 2024–2025 bills.
