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Kris Wrenn

Major Tax Changes to Come

Written by Kris Wrenn

From next financial year the Stage 3 tax cuts finally come into play and it is never too soon to start planning your finances accordingly. This article will provide you with multiple strategies and things to consider, both to implement THIS financial year before the cuts kick in and beyond once they do.

A BIT OF HISTORY

The three stages of tax cuts were originally announced back in the 2018/19 budget and stages 1 and 2 have since been implemented. Essentially stages 1 and 2 benefited lower income earners, where stage 3 will benefit mid to higher income earners.

Given the nature of stage 3, some might have been forgiven for thinking that Labor might have worked to alter or reverse these changes, however nothing of the sort has been suggested, as yet. The changes have been fully legislated and we are not awaiting further approval. That said, we do have one more Federal Budget between now 1st July, so slight amendments, or perhaps more likely, additions to tax rules could still be to come.

CHANGES TO TAX RATES FROM NEXT FINANCIAL YEAR AS IT STANDS

Currently we have the following income tax rates (not accounting for various income offsets, nor medicare levy:

[table id=30 /]

The New Tax rates will look as follows:

[table id=31 /]

As you can see above, we will be removing a whole bracket and also reducing the amount of tax paid for anyone earnings over $45,000.

KEY POINTS TO NOTE –

  • ONCE AGAIN – ANYONE EARNING OVER $45,000 WILL BENEFIT!
  • The more you earn over $45,000 the more you benefit up to the $200,000 mark. i.e. If you earn $220,000 or $250,000, you will be no better off financially than those earning $200,000.
  • Those that earn $80,000 will pay $875 less tax.
  • Those that earn $120,000 will pay $1,875 less tax.
  • Those that earn $180,000 will pay $6,075 less tax.
  • Those earning $200,000 or more will pay $9,075 less tax.

POTENTIAL STRATEGIES

STRATEGY 1 THIS FINANCIAL YEAR– Let’s start with the obvious, for those earning over $45,000, you will be taxed less next financial year, assuming your income remains the same. So, should you try to reduce your taxable income THIS financial year?, perhaps by:

  • Pre-paying tax-deductible expenses. This might be a years worth of interest payable on an investment loan for shares/property. Talk to our finance director Brendan Gilmour to see how this might work.
  • Perform repairs or maintenance on an investment property this financial year.
  • Making a tax-deductible contribution to Super prior to July 1st. This might be up to the annual cap of $27,500, or potentially even more if you have “Catch up” concessional contributions available. If you haven’t maximised the concessional limit since the 2018/19 financial year, and if your Super balance was less than $500,000 on July 1st this year, then you likely have catch up contributions available. Talk to a Hudson financial planner to see how much you might benefit here.
  • Delaying selling investments whereby you have an unrealised capital gain.
  • If you’re self employed, can you bring forward any business expenses or repairs, so as to reduce your taxable income?
  • Delaying voluntary termination payments.

STRATEGY 2 THIS FINANCIAL YEAR – Super Contribution Reserving. This one is a bit of a “loophole”, only for those with a Self-Managed Superannuation Fund (SMSF). If a contribution is received by a member in June, then the SMSF trustee can elect to nominate the contribution to the following financial year. The contribution is deductible for the individual for the previous financial year but the contribution itself counts towards the concessional contribution cap for the following financial year. The SMSF trust deed must include provisions to allow this.

This strategy is particularly useful for those with balances of over $500,000, i.e. those not eligible to make catch up contributions. Such an individual could contribute $27,500 to Super on say, the 10th June, then another $30,000 to Super on 20th June. In the first week of July, the SMSF trustee could elect to allocate the $30,000 to the 2024/25 financial year. That way, they have not breached the annual cap, BUT, they get to claim $57,500 as tax deductible in the 2023/24 financial year.

STRATEGY 3 NEXT FINANCIAL YEARDon’t waste your extra cash flow! Anyone reading this who earns over $45,000 is going to experience an increase in their take-home pay from July next year. If you ignore it, there’s a good chance you will find a way to spend it, without even realising it. Why not:

  • Make additional payments to your (now more expensive) home loan to the same amount as you save.
  • Make additional contributions to Super of the same amount.
  • Invest the extra money!

Speak to a Hudson financial planner and make a plan!

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Plant a tree with us today, to sit in the shade in the future.

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