Heads up, Australian residents! The ever-changing tax environment brings crucial updates to personal tax rates in 2025 that you’ll want to be aware of. As your trusted business advisory partner, Infinity22 is here to help you navigate these changes and ensure you’re making the most of your financial situation.
Understanding these new tax rates is crucial, not just for compliance but for effective financial planning. Let’s dive into the 7 key changes you absolutely need to know.
1. The Stage 3 Tax Cuts Are Here (and Refined!)
The much-anticipated Stage 3 tax cuts are officially in full swing for the 2024-25 financial year, bringing widespread adjustments to tax rates. This isn’t a minor tweak; it’s a recalibration designed to provide broader tax relief.
Here’s a breakdown of the updated tax rates for Australian residents:
- Tax-free threshold: Remains at $0 – $18,200 (Nil tax rate).
- 16% Tax Rate: Applies to income from $18,201 to $45,000 (reduced from 19%).
- 30% Tax Rate: Applies to income from $45,001 to $135,000 (reduced from 32.5%, and the threshold increased from $120,000).
- 37% Tax Rate: Applies to income from $135,001 to $190,000 (the threshold increased from $120,000 to $135,000).
- 45% Tax Rate: Applies to income over $190,001 (the threshold increased from $180,000 to $190,000).
These changes mean many Australians will now fall into lower tax brackets or pay less tax on parts of their income, putting more money back in their pockets. This is a big deal for your overall tax liability!
2. Medicare Levy Low-Income Thresholds Are Increasing
While the standard Medicare Levy remains at 2% of your taxable income, the low-income thresholds for exemption or reduced levy are increasing from 1 July 2024. This adjustment is highly beneficial for individuals on lower incomes, as it means a greater number of Australians will either benefit from a reduced levy amount or be completely exempt. It’s an important consideration when calculating your total tax rates.
3. Changes to HECS-HELP Repayment Thresholds and Rates
If you have a HECS-HELP debt, pay close attention! From July 1, 2025 (subject to legislation), the income point at which HECS-HELP repayments become compulsory is set to move upwards from $54,435 to $67,000. This means you’ll be able to earn more before you’re required to start making repayments.
Additionally, a revised system for marginal repayment rates is being introduced. Under this new approach, repayments will no longer be calculated on your entire income; instead, they will only be applied to the portion of your income that exceeds the new $67,000 threshold. This aims to make repayments fairer and provide more disposable income, particularly for lower-income earners. This directly impacts your effective tax rates when you factor in student loan repayments.
4. Low Income Tax Offset (LITO) Continues to Offer Support
The Low Income Tax Offset (LITO) remains a valuable support for eligible low-income earners. If your taxable income is $66,667 or less, you may be eligible for this offset, which can reduce your tax payable to $0. Those with an income of $37,500 or below can qualify for the full $700 offset. This offset is automatically calculated by the ATO when you lodge your tax return, so you don’t need to apply separately. However, it’s crucial to be aware of how it interacts with your overall tax rates.
5. Foreign Resident Capital Gains Withholding Rate Increased
While primarily affecting property transactions, it’s worth noting that from 1 January 2025, the foreign resident capital gains withholding (FRCGW) rate increased to 15%, and the $750,000 threshold for withholding was removed. If you’re an Australian resident selling property, ensuring you have a clearance certificate is vital to avoid unnecessary withholding. This change can indirectly impact Australian residents involved in transactions with foreign residents and is a key part of the broader tax rate environment.
6. Work-Related Expenses: A Refined Fixed Rate Method
Good news for remote workers: as of July 1, 2024, the fixed rate for claiming work-from-home expenses rose from 67 cents to 70 cents per hour. While not a direct tax rate change, it impacts the deductions you can claim, thereby influencing your overall tax payable. Keep accurate records of your working-from-home hours to maximise your deductions.
7. Instant Asset Write-Off Extended for Small Businesses
Good news for small businesses! The instant asset write-off, which allows you to immediately deduct the full cost of eligible assets valued under $20,000, has been extended until 30 June 2025. This provision applies to businesses with a total annual turnover below $10 million. While not a personal tax rate change, it presents a significant opportunity for sole traders and small business owners to reduce their taxable income and, consequently, their personal tax liability.
Don’t Let Tax Changes Catch You Off Guard!
Staying on top of these evolving tax rates and regulations can feel overwhelming. That’s where Infinity22 comes in. Our team of expert online tax accountants and business advisors is dedicated to helping Australian residents and businesses navigate the complexities of the tax system.
We go beyond simply lodging your tax return. We provide actionable advice, tailor strategies to minimise your tax liabilities, and ensure you’re always compliant. Whether it’s understanding the nuances of the new tax rates, maximising your deductions, or planning for your financial future, we’re here to help.
Don’t leave your tax to chance. Contact Infinity22 today for a free consultation and let us help you work smarter, not harder, with your tax rates and financial goals.
