Understanding the Australian Tax Rates 2024–25
Australian Resident Tax Rates 2024 to 2025
The 2024-2025 financial year in Australia introduces significant changes to tax rates and thresholds, benefiting middle-income earners and simplifying the tax structure. Here’s a breakdown of what’s new and how these changes could impact you.
Reduction in Tax Rates
From 1 July 2024, key tax rate reductions have been introduced:
- 16% tax rate: The previous 19% tax rate has been reduced to 16%, offering greater savings to those in lower income brackets.
- 30% tax rate: The former 32.5% rate has dropped to 30%, benefiting individuals with mid-range incomes and putting more money back in their pockets.
Low and Middle Income Tax Offset (LMITO) Ends
The Low and Middle-Income Tax Offset (LMITO), available in previous years, will no longer be available from the 2024-2025 tax year. This change may result in some low—and middle-income earners facing slightly higher tax liabilities compared to previous years.
Small Business Incentives
The government is introducing additional incentives for small businesses, including:
- Instant Asset Write-Off: The threshold for instant asset write-offs remains at $20,000 for small businesses, enabling immediate deductions for business assets below this value.
- Small Business Energy Incentive: This new incentive supports businesses in transitioning to cleaner energy options. Companies can claim deductions on energy-efficient equipment and upgrades.
Superannuation Changes
There are a few updates concerning superannuation contributions:
- Super Guarantee: The superannuation guarantee rate has increased to 12%, meaning employers will now be required to contribute a higher percentage to their employees’ super funds.
- Catch-Up Contributions: Individuals under $500,000 can make “catch-up” contributions for unused caps from previous years, allowing more flexibility to top up super balances.
Medicare Levy Adjustments
The Medicare Levy threshold has been slightly increased for the 2024-2025 year, which may exempt low-income earners from paying the levy. Additionally, the Medicare Levy Surcharge remains in place for higher-income earners without private health insurance, continuing as an additional cost for those who haven’t secured coverage.
Work-From-Home Deduction Updates
The ATO has revised the work-from-home deduction rate. The new fixed rate is 67 cents per hour and covers electricity, internet, and phone expenses. You must keep accurate records, such as a diary of hours worked from home.
Digital and Online Services Tax
Australia is introducing a new digital services tax targeting multinational tech companies. While this doesn’t directly impact individual taxpayers, businesses using certain global digital platforms may see price increases as companies pass on costs.
If you’re a work and holiday maker in Australia (on a 417 or 462 visa), it’s essential to understand the specific tax rates that apply to your earnings. These rates differ from those of Australian residents and are designed for temporary visitors who work while travelling in Australia. Here’s a breakdown of the work and holiday makers’ tax rates for the 2024-2025 financial year:
2024-2025 Tax Rates for Work and Holiday Makers
For work and holidaymakers, the Australian Taxation Office (ATO) applies a unique tax rate structure:
These rates ensure that Work and Holiday makers pay a fair tax on their earnings, allowing the Australian government to support the local economy and maintain public services that benefit both residents and temporary workers.
Important Considerations
- Residency Status for Tax Purposes: Work and holidaymakers are classified as non-residents for tax purposes, regardless of the length of their stay. They do not benefit from the tax-free threshold available to Australian residents.
- Superannuation Payments: If you’re a work and holiday maker, you’re entitled to superannuation from your employer, which you can access through a Departing Australia Superannuation Payment (DASP) when you leave the country. Note that the DASP is taxed at a higher rate for 417 and 462 visa holders.
- TFN Requirement: Ensure you have a Tax File Number (TFN), as this will reduce the tax withheld from your earnings. Without a TFN, your employer must withhold tax at the highest rate, which is currently 45%.
- Filing a Tax Return: At the end of the financial year, you’re required to lodge a tax return, even if you’ve only been in Australia for a portion of the year. Lodging a tax return ensures you meet compliance requirements and gives you a chance to claim any deductions or rebates you might be eligible for.
- Record-Keeping: Keep accurate records of your income, tax withheld, and any work-related expenses. Good record-keeping will make tax filing easier and ensure you have all the necessary documentation in case of an audit.
How to Prepare for These Changes
With these updates in mind, here are steps to prepare for the 2024-2025 tax year:
- Review your tax bracket: If you’re a middle or high-income earner, check how the Stage 3 tax cuts affect your take-home pay.
- Adjust your tax withholdings: Ensure your employer is withholding the correct tax amount based on the new rates.
- Maximise super contributions: Use the super contribution caps, including catch-up contributions, to reduce taxable income and grow your retirement savings.
- Seek professional advice: With the end of LMITO and other changes, consult a tax agent to optimise your deductions and minimise tax liabilities.
