What do Tax Cut Changes Mean for Me? Home Buyers Homeowners and Investors

Great news for homebuyers and homeowners; the Australian Government has announced changes to the stage 3 tax cuts which will put extra cash back in the pockets of more Australians.

What Changes Are Being Made To The Stage 3 Tax Cuts?

• Australians earning between $18,200 and $45,000 a year will see a reduction in tax rate from 19% to 16%. These taxpayers would not have received a tax cut under the original stage 3 package.
• The 37% tax bracket will be preserved and will now apply to those earning between $135,000 and $190,000 a year (the 37% tax bracket was going to be removed altogether under Morrison’s Stage 3 tax cuts, making the income tax system flatter).
• The revised stage 3 tax cuts will see the top tax threshold lowered from $200,000 (original stage 3 package) to $190,000+.

How Much Will I Save?

The original stage 3 tax cuts are compared with the revised stage 3 tax cuts in the table below.

Will Tax Cuts Help First Home Buyers?

The changes to the stage 3 tax cuts are being implemented to combat the rising cost of living. People looking to buy their first homes are likely to benefit, as the revised tax cuts should help to give deposit savings and borrowing power a boost. For example, under the original stage 3 package, people earning between $18,200 and $45,000 per year would not have received a tax cut at all. Under the revised stage 3 tax cut package, the tax rate for these taxpayers will be reduced from 19% to 16%, putting up to $800 more in their pockets per year.

Will Tax Cuts Help Loan Approval?

There are several benefits for those looking to enter the property market. Increased borrowing power and disposable income can help to provide more disposable income, to service your loan. If you’re taking home more money week in week out, and seeing a boost in savings, it may positively affect your serviceability calculation.

A serviceability calculation is a calculation carried out by lenders that considers income, expenses, spending habits and financial commitments, to predict how likely you are to meet repayments. Extra income could mean you’re considered ‘lower risk’ according to this calculation.

If you have existing debts, such as car loans, credit card debts or a student debt, you could also put the additional tax cut funds towards paying these off, improving your credit score and making you more attractive to lenders.

The relationship between tax cuts and borrowing capacity is complex and depends on various factors. Seeking guidance from a finance expert who can assess your specific situation in detail is highly recommended before making any significant financial decisions. Feel free to reach out to your local MoneyQuest finance expert if you’d like to learn more about the potential impact tax cuts may have on your borrowing capacity.

How Will Homeowners Be Affected?

The biggest benefit for homeowners relates to ‘The Mortgage Cliff’.

Mortgage holders at the end of their fixed rate terms may experience a significant rise in their home loan interest rate, given variable interest rates have skyrocketed over the last 2 years. The tax cuts could help ease the burden for those moving off low fixed rates to higher variable rates and help with managing increased mortgage repayments. Those struggling to make repayments will also have additional funds available, reducing the risk of mortgage default.

Are Tax Cuts Good For Everyone?

Almost all Australian taxpayers are set to receive a tax cut, however Labor’s tax cut changes will result in greater benefits for those that fall within the lower and middle-income tax brackets, and the higher tax bracket will receive a smaller tax cut than first legislated.

If you’re in the higher tax bracket and were planning your financial strategy based on the previous Government’s stage 3 outline, it may be worth revisiting this and readjusting your plans. For example, if your annual income is $180,000 and you were planning to use the extra money from the tax cut as a deposit on an investment property, under the revised stage 3 package you will have $2,346 less available for the deposit.

What’s The Long-Term Effect?

As with any economic change at a national level, it’s difficult to predict what the overall impact will be, however it’s widely believed that these tax cuts will help to address Australia’s current cost of living crisis. Opinion is divided on whether the tax cuts will have a material impact on the course of inflation and property demand. Some politicians and economists argue that giving people more money will stoke the inflation flame, whereas Westpac’s Chief Economist and former RBA Assistant Governor Luci Ellis disagrees, stating “while the changes this week alter the distribution of the benefits, the macroeconomic

impact of this – relative to the package as originally announced – is marginal…we do not expect that this will affect the RBA’s view of the inflation outlook or the future path of the cash rate.”

The tax cuts will come into effect on the 1st of July, 2024.

Whether you’re buying your first home, buying an investment property, refinancing your loan or need any other loan assistance, you can learn more about how these tax changes may impact you from your local MoneyQuest broker. We can also compare rates and loan products from a wide range of lenders and guide you through the steps of your loan journey. Feel free to reach out to us today.

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