As the calendar turns to the 2024-2025 financial year, employers should brace themselves for notable changes in payroll, driven by updates in tax rates and superannuation contributions. These adjustments, kicking off from July 1, 2024, are poised to affect both your cash flow and your employees’ take-home pay.
Reduced Tax Rates for Employees
The first point of interest is the shift in individual tax rates, which is good news for your workforce. Employees will be delighted to discover that they’ll retain more of their earnings this year compared to the last, assuming their income remains the same. This change is not just a win for employee morale but could also enhance their financial well-being.
The Impact on Your Business
From a business perspective, the immediate effect is twofold. Firstly, for the same salary, your employees will enjoy a slight increase in their weekly take-home pay. While this is a gain for them, your business will also experience a minor uptick in weekly payroll expenses.
However, there’s a silver lining. When it’s time to remit your Pay As You Go (PAYG) withholding to the government, you’ll find these amounts have decreased, balancing the overall cost to your business. The result? Even though your weekly cash outflows will see some changes, the total expense for the same salary remains unchanged.
Adjusting to Superannuation Increases
The second change to remember is the increase in the super guarantee rate, which has risen from 11% to 11.5%. Although modest, this increment will result in higher superannuation payments each quarter, assuming wage levels are consistent with the previous year. Consequently, your overall staff costs will see a slight increase.
A Historical Perspective on Tax Rates
Before we delve into the specifics of the new tax rates, let’s take a moment to reflect on the historical tax rates. Looking back to 2003, when I began my journey in the accounting industry, the top marginal tax rate of 47% was triggered at an income of $60,000. Fast forward to today, and that same top rate now only applies to incomes exceeding $190,000—a substantial shift that illustrates how tax thresholds have evolved.
Even more striking is the comparison to 40 years ago. In 1984, the top marginal tax rate was a hefty 60%, starting at incomes just under $36,000. Today’s thresholds and rates show a significant easing, offering a broader perspective on our current tax landscape.
Embracing the New Tax Rates
Now, let’s focus on the fresh tax rates that come into play:
- The tax-free threshold remains at $18,200.
- The tax rate has been reduced from 19% to 16% for incomes between $18,200 and $45,000, offering a 3% savings.
- The next bracket, previously capped at $120,000, has been extended to $135,000, with the tax rate dropping from 32.5% to 30%.
- The subsequent bracket, previously capped at $180,000, has been extended from $135,000 to $190,000, maintains a tax rate of 37%.
- Incomes above $190,000 (previously $180,000) are to be taxed at 45%.
These adjustments in tax brackets mean that individuals earning more than $18,200 will be in a better tax position in the upcoming financial year.
For employers, these changes underscore the importance of staying informed and prepared. Understanding how these tax and superannuation adjustments impact your business is crucial for effective financial planning.
Should you have any questions about navigating these new tax rates and their implications for your business, don’t hesitate to ask for support. Our goal is to help you adapt smoothly to these changes and ensure your business continues to thrive in the new financial landscape.
Book a Discovery Call with Ryu at https://impalatax.com.au/discovery/
