A new financial year usually brings changes to tax, superannuation and Centrelink rules. That’s true again this new year.
There are income tax cuts for all, in the form of the Stage 3 tax cuts legislated several years ago, but then recently reduced for higher earners for political reasons. Stages 1 and 2 cuts for lower earners have been implemented previously.
The bottom tax rate will fall from 19 per cent to 16 per cent and the second bracket from 32.5 to 30 per cent. The 37 per cent bracket will start from $135,000 annual income instead of $120,000 and the top rate of 45 per cent will begin at $190,000 instead of $180,000.
This means a person earning $70,000 will see their taxes cut by $1,429 per annum. They will receive about $27.50 per week extra take-home pay. A person earning $50,000 per year will save $929 and someone on $100,000 will be $2,179 better off.
For those over age 67 the Seniors and Pensioners Tax Offset means single retirees will pay no tax up to $34,919 per annum and couples will be able to earn $30,994 each tax free.
What is the smartest way to use the tax savings? People feeling serious pain from the cost-of-living squeeze will obviously use them to pay essential bills.
For those less pressured the main options are paying extra off debts, increasing home loan payments, starting a savings plan or salary sacrificing to superannuation.
If debt reduction is the preferred option, it is important to pay down the highest interest rate loans first. If there are credit card or personal loan debts pay them before the home loan. When they are gone much more can go to the mortgage.
Starting a savings plan at the bank by regular automatic debit is easy. Savings plans can also use managed funds that earn higher returns long term. They can begin with minima of $1,000 initially and $100 per month contributions. People keen to build their super balances can save via salary sacrifice.
The employer Super Guarantee rate has increased to 11.5 per cent. Every worker has received a pay rise of 0.5 per cent even though it’s not in their wage. It is an extra cost for employers.
The concessional super contribution limit has increased from $27,500 to $30,000. That’s the maximum employer and personal tax-deductible contributions allowed. The non-tax-deductible limit has gone up to $120,000, or $360,000 for three years using the bring-forward rule.
The deeming rate Centrelink uses in the Age Pension Income Test will remain frozen at the current low levels for another year, despite much higher interest rates now available at the banks. July 2025 could see that change.
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