The Albanese government has announced changes to personal tax rates from the start of the 2025 financial year. They are now law.
New personal tax rates and thresholds for 2024-25
The major changes are as follows:
- reduce the 19 per cent tax rate to 16 per cent.
- reduce the 32.5 per cent tax rate to 30 per cent. increase the threshold above which the 37 per cent tax rate applies from $120,000 to $135,000.
- increase the threshold above which the 45 per cent tax rate applies from $180,000 to $190,000. Implications for Superannuation The Australian Government creates an incentive for salary and wage earners (and small business owners too) to put money into Superannuation.
Contribution Incentives
The incentive is- you can reduce your personal taxable income by the amount you contribute over and above your Superannuation Guarantee. For examplewhen you contribute $1,000 above your SG rate, your taxable income is reduced by $1,000. Therefore, saving personal tax.
Once you claim that deduction however, you pay 15% tax on your contribution (inside of Super) until your personal income exceeds $250,000.
Supervision each year analyse the cut-off point where contributing to Superannuation becomes less tax effective.
In the current financial year, if your income is lower than $54,500 then you will pay more tax by putting money into Superannuation than paying marginal tax rates.
When analysing the new tax rates (2025 Financial Year), salary and wage earners need to be earning more than $61,400 in personal income before receiving any tax benefit for voluntary contributions.
You may be wondering how the maths works. Please see the calculation below:
Current Year (2024 FY) Not including Medicare Levy
In the example above, if you earn more than $54,500, then your effective personal tax rate is higher than 15%. Therefore, any reduction in your income, due to salary sacrifice will reduce your personal income taxation. The more you earn over this amount, the bigger the impact of Salary Sacrifice becomes.
Next Financial Year (2025 FY) not including Medicare Levy
So, to save personal tax dollars by salary sacrificing into Superannuation in the 2025 Financial Year, your annual income will need to be above $61,400. If your income drops below this amount then you will pay 15% tax on contributions, whereas your marginal tax rate is lower than 15%.
The point of the above calculation is to make sure you understand that the tax incentive is limited once your taxable income dips below a certain point. You may still want to contribute for other reasons, but you can choose to contribute as non-concessional contributions into Super and save on 15% tax.
Final thoughts
The 2025 financial year brings significant changes to personal tax rates under the Albanese government, aimed at reducing tax burdens for Australians. With tax cuts across various income brackets and revised thresholds, individuals need to navigate these changes smartly. While superannuation remains a taxeffective investment avenue, the calculations reveal that the tax benefits of salary sacrificing into super kick in for those earning over $61,400 annually. Understanding these intricacies is crucial for individuals to optimize their tax strategies and financial planning in the coming fiscal year.
