If you have paid attention to Australian tax news over the past few years, you have probably heard of the “stage 3 tax cuts” more than once. They were announced in 2018, legislated in 2019, redesigned in early 2024, and finally took effect on 1 July 2024. Along the way, what they actually became changed dramatically.
This guide explains the full story in plain English: what the original stage 3 tax cuts were, what the redesigned version looks like, how much tax you actually save at different income levels, who won and who lost from the redesign, and what the current brackets mean for you in 2025-26. These rates apply to Australian residents for tax purposes and exclude the 2% Medicare levy.
How Australia’s personal income tax plan came about
The three-stage personal income tax plan was first announced in the 2018-19 Federal Budget under the Morrison government. Its stated purpose was to tackle bracket creep — the phenomenon where rising wages gradually push taxpayers into higher tax brackets, so they pay more tax even when their real purchasing power has not improved.
The plan was deliberately staged:
- Stage 1 (from 1 July 2018): introduced the Low and Middle Income Tax Offset (LMITO) of up to $1,080 per year and raised the 32.5% bracket threshold from $87,000 to $90,000.
- Stage 2 (brought forward to 1 October 2020): raised the 32.5% bracket ceiling from $90,000 to $120,000, lifted the 37% bracket floor from $90,000 to $120,000, and raised the Low Income Tax Offset (LITO).
- Stage 3 (from 1 July 2024): the headline event — a structural reshaping of the brackets themselves.
Stages 1 and 2 delivered relief along the way. Stage 3 was always the most consequential part, because it was going to flatten the middle of the tax system into a single 30% band for everyone earning between $45,000 and $200,000.
The original stage 3 tax cuts: what was legislated
As originally legislated, the stage 3 tax cuts due to start on 1 July 2024 would have looked like this:
| Taxable income | Marginal tax rate |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 19% |
| $45,001 – $200,000 | 30% |
| $200,001 and over | 45% |
Three things stood out in this original design:
- The 37% bracket was abolished entirely, merging the $45,001–$120,000 (32.5%) and $120,001–$180,000 (37%) ranges into one flat 30% band stretching from $45,001 to $200,000.
- The 45% top rate threshold rose from $180,001 to $200,001, so high earners paid the top rate on a smaller slice of income.
- The bottom two brackets were untouched — the 19% rate on $18,201–$45,000 stayed exactly as it was, meaning someone earning $40,000 would have received no tax cut at all.
Under this version, the biggest winners were high-income earners. A taxpayer on $200,000 would have received an annual tax cut of $9,075, while someone on $80,000 would have received just $875, and anyone earning $45,000 or less would have received nothing.
The redesigned stage 3: what actually took effect on 1 July 2024
In January 2024, the Albanese government announced it would amend the already-legislated stage 3 cuts, arguing the original design was weighted too heavily towards top earners at a time when cost-of-living pressures were hitting low and middle-income households hardest. The amendments passed Parliament in early 2024, and the redesigned rates took effect from 1 July 2024.
The changes did four things compared with the 2023-24 settings:
- Reduced the 19% rate to 16% on income between $18,201 and $45,000.
- Reduced the 32.5% rate to 30%, with the band extended to $135,000.
- Reinstated the 37% bracket — but with the threshold raised from $120,000 to $135,000, and the top of the bracket extended to $190,000.
- Raised the 45% top-rate threshold from $180,001 to $190,001.
Here is how the original plan and the redesigned plan compare, side by side:
| Original stage 3 (legislated 2019) | Modified stage 3 (in force from 1 July 2024) |
|---|---|
| $0 – $18,200: Nil | $0 – $18,200: Nil |
| $18,201 – $45,000: 19% | $18,201 – $45,000: 16% |
| $45,001 – $200,000: 30% | $45,001 – $135,000: 30% |
| (37% bracket abolished) | $135,001 – $190,000: 37% |
| $200,001 and over: 45% | $190,001 and over: 45% |
For 2025-26, these exact same rates and thresholds continue to apply — no further changes to the brackets are in force this year. (More on what is legislated for future years below.)
Winners and losers: who benefits from the redesign
The redesign spread the same total value of tax cuts much more widely. Under the original plan, 13.6 million taxpayers were projected to receive a cut, but a large share of the dollar value flowed to top earners. Under the redesigned plan, the same 13.6 million taxpayers still get a cut — but low and middle-income earners get a meaningfully bigger one.
Key facts about who gains and who gives up ground:
- Every resident taxpayer still pays less tax than under the 2023-24 settings. Nobody’s tax bill went up.
- Taxpayers earning up to around $146,000 are better off under the redesigned plan than they would have been under the original stage 3 design.
- Above roughly $146,000, the cut is smaller than under the original plan. At $160,000, the redesigned cut is $946 per year smaller; at $180,000 it is $2,346 smaller; and at $200,000 it is $4,546 smaller — roughly half the original $9,075 cut.
- Someone on $40,000 now receives $654 a year where the original plan gave them nothing.
The dollar figures in the table below are annual tax savings compared with the old 2023-24 rates (excluding Medicare levy):
| Taxable income | Cut under original plan | Cut under redesigned plan | Difference |
|---|---|---|---|
| $40,000 | $0 | $654 | +$654 |
| $50,000 | $125 | $929 | +$804 |
| $80,000 | $875 | $1,679 | +$804 |
| $100,000 | $1,375 | $2,179 | +$804 |
| $120,000 | $1,875 | $2,679 | +$804 |
| $150,000 | $3,975 | $3,729 | -$246 |
| $180,000 | $6,075 | $3,729 | -$2,346 |
| $200,000 | $9,075 | $4,529 | -$4,546 |
To put these in everyday terms: a taxpayer on $80,000 keeps an extra $1,679 a year — about $32 a week — compared with 2023-24, nearly double the $875 the original design offered. On $50,000 the cut is $929 a year, around $18 a week. These figures do not include the Low Income Tax Offset, which can reduce tax further for eligible lower-income earners.
What about Medicare? The extra piece of stage 3 relief
Income tax brackets are only part of the story. Alongside the redesigned cuts, the government also lifted the low-income thresholds for the Medicare levy (an additional 2% on taxable income where it applies).
From 1 July 2024, a single individual did not start paying the Medicare levy until income reached $26,000 (previously $24,276), and the March 2025 Budget lifted that single threshold further to $27,222. Family, senior and pensioner thresholds were raised as well. For low-income earners near the levy threshold, this change is worth real money on top of the bracket cuts.
What do the stage 3 cuts mean for your take-home pay right now
Because the changes took effect on 1 July 2024, you do not need to do anything to receive the benefit. Employers and super funds adjusted their withholding schedules, so the savings flow through automatically in your regular pay — you have been receiving a slightly larger take-home pay since your first pay cycle of the 2024-25 year. Your tax return also reflects the lower rates automatically.
The practical effects worth knowing:
- Salary packaging and super strategies: the lower 16% rate means salary-sacrificing into super is relatively more attractive for earners in the $18,201–$45,000 range, since the gap between the personal rate and the 15% contributions tax has narrowed.
- Borrowing power: lenders assess your net income, so the higher take-home pay has nudged borrowing capacity up. Analysis at the time estimated an $80,000 earner’s borrowing capacity increased by around $16,700, and a $150,000 earner could borrow roughly $37,000 more.
- HECS/HELP repayments: your compulsory repayment is based on your repayment income and the repayment rates — the tax cuts do not change your HECS repayment obligations, but they do increase the cash you keep alongside those repayments.
Want to see exactly what the current brackets mean for your salary? Try the income tax calculator to get your take-home pay, tax and Medicare levy broken down under the 2025-26 rates, or the tax refund estimator to estimate what your next return could look like.
Are there more tax cuts coming? What is legislated for 2025-26 and beyond
For the 2025-26 year, no new bracket or rate changes are in force — the modified stage 3 rates above are exactly what apply to the return you lodge in 2026.
However, one further round of cuts is already legislated. In the March 2025 Federal Budget, the government announced it would trim the lowest marginal rate, and the bill passed both houses of Parliament:
- From 1 July 2026: the 16% rate on $18,201–$45,000 falls to 15%, worth up to $268 a year for anyone earning above $45,000.
- From 1 July 2027: the rate falls again to 14%, worth up to $536 a year for anyone earning above $45,000.
No other brackets change. Note that the Low Income Tax Offset (LITO, up to $700) remains in place, while the temporary Low and Middle Income Tax Offset (LMITO) ended in 2021-22 and is not coming back.
Frequently asked questions
When did the stage 3 tax cuts actually start?
1 July 2024 — but not in the form originally legislated. The government amended the plan in early 2024, and the redesigned brackets (16%, 30%, 37%, 45%) are what took effect and still apply in 2025-26.
Did the stage 3 tax cuts apply to everyone?
Every Australian resident taxpayer paid less income tax from 1 July 2024 than under the 2023-24 settings. The size of the cut varies by income: the redesigned plan favours earners under about $146,000, while those above that level receive a smaller cut than the original design offered.
How much do I save if I earn $100,000?
On a taxable income of $100,000, you pay $2,179 less tax per year than under the old 2023-24 rates — about $42 a week. Under the original stage 3 design, the saving would have been $1,375.
How much do I save if I earn $200,000?
$4,529 per year compared with 2023-24 rates. That is roughly half the $9,075 saving the original stage 3 design would have delivered at that income — this is where the redesign’s redistribution shows up most clearly.
Do the stage 3 tax cuts change my Medicare levy?
The Medicare levy itself stays at 2%, but the low-income thresholds were lifted alongside the cuts: singles do not start paying it until income reaches $27,222 (following the March 2025 Budget change), with higher thresholds for families, seniors and pensioners.
Are more tax cuts coming in 2026 or 2027?
Yes — legislated. The 16% rate on income between $18,201 and $45,000 drops to 15% from 1 July 2026 and to 14% from 1 July 2027, worth up to $268 and then $536 a year. No other brackets or rates are scheduled to change.
Conclusion
The stage 3 tax cuts travelled a long road — announced in 2018, legislated in 2019, redesigned in 2024 — but the end result is simpler than the saga suggests. From 1 July 2024, Australia’s resident tax brackets have been 0%, 16%, 30%, 37% and 45%, with wider thresholds than before. Everyone pays less than they did in 2023-24, low and middle-income earners keep substantially more of each pay than the original plan would have given them, and high earners still receive a cut, just a smaller one.
The same brackets apply throughout 2025-26, and further legislated cuts to the lowest rate arrive in 2026-27 and 2027-28. The best move now is to check what the current rates mean for your own pay packet. Use the income tax calculator for a full breakdown of your tax, Medicare levy and take-home pay under today’s rates, or the tax refund estimator to preview your next return.