The Albanese Government’s changes to Stage 3 Tax laws have now passed through the Senate effectively gifting $4,500 per year in extra cash to Australian’s who earn $190,000pa.
If you’re in this tax bracket it begs the question – what to do with it? Will it disappear into oblivion or will you put this money (that you’ve never had before) to more productive use? In this article we explore the options for making the most of your tax cut windfall.
The new tax laws come into effect on 1 July 2024 and for those Australians earning $190,000pa they can look forward to an extra $4,529 each year which is a tad over $377 per month.
This is courtesy of the change from the current 45% tax rate to the new 37% tax rate for those earning $135,001 to $190,000. (The 2% Medicare Levy still applies.)
While there is no doubt the extra cash will help with day-to-day cost of living, the fact is it could very easily disappear into day-to-day discretionary expenses. Afterall, it’s money you’ve never had before and we understand it feels great to have the chance to spend it guilt free.
However, it could be used with greater purpose and potentially, give your personal wealth a fairly significant boost.
While $4.5K is a reasonably significant amount of extra cash, $9K is even better if you are one half of a couple who are each earning $190K.
When it comes to your options there are at least four.
Option #1 – Spend it!
For some households $9K will relieve some of the pressure of inflation and higher interest rates on home loans. For others its extra money available to be spent on having a good time, buying a new wardrobe, a holiday or something else that enhances your lifestyle or simply makes you happy. If this is your choice – enjoy!
Option #2 – Pay down debt
If you have a home loan, paying an additional $375 or per month or $750 if you’re a high earning couple as a repayment or to an offset loan, it could shave years off the term of your loan.
Option #3 – Invest
Investing your extra cash in quality shares for long term growth is another worthwhile strategy and especially satisfying because any dividends would be paid on money you’ve never had before. Using your $375 or $750 per month in a dollar cost averaging approach there’s potential for significant personal wealth benefits over the coming years.
Option #4 – Contribute to super
Again it’s money you won’t miss. Contributing extra to your super and topping up your employer’s contributions to maximise your annual superannuation cap of $27,500 will boost your retirement savings. It will also provide an additional tax saving as money held in super is taxed at a flat 15% tax rate which is considerably less than the usual and new income tax rates which can be up to 45%.
It’s also worth noting, if you or your spouse are in the $18,000 to $190,000 income band and you are eligible for catch-up super contributions it may be more advantageous for you to make the ‘catch-up’ this year.
Firstly because the catch-up contribution provision applies to a rolling five-year period which means if you have an eligible catch-up amount from 2018, it will lapse and will not be available after 1 July.
To find out more about the wealth gap and holistic financial planning based on a collaborative advice team approach, that effectively manages the financial complexity affecting high earning executives and business leaders, please give me a call on +61 (0) 7 3007 2080 or email contact@executivestrategies.com.au to request a call back.
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Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.
Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.
