How Stage 3 Tax Cuts Can Supercharge Your Borrowing Capacity in 2024

July 5, 2024

The Australian property market is poised for significant changes, with major stage 3 tax cuts set to increase borrowing capacity for many buyers by tens of thousands of dollars since they came into effect on July 1.

These changes come at a crucial time as the market rebounds to a new high, with the total value of Australia’s residential housing market reaching $10.7 trillion and the median home value standing at $732,886.

Residential Real estate underpins Australia's wealth with a total value of $10.7 Million

Stage 3 Tax Cuts to Boost Borrowing Capacities

With the implementation of stage 3 tax cuts 2024, most Australians will see an increase in their take-home pay, thereby boosting their maximum borrowing capacities. This increase in buyers’ budgets could alleviate some affordability challenges caused by high interest rates, although it may also drive property prices higher in the coming months.

How Tax Rates Changed from July 1, 2024

Tax rate changes between financial year 23/24 and 24/25. Source: treasury.gov.au

Source: Treasury Australia

The tax-free threshold ensures that individuals with a taxable income below $18,200 do not have to pay income tax.

Individuals earning the slightly above average full-time annual salary of $98,000 would save $2129 per year, while someone in the mid-tier of the income bracket making $50,000 to $80, 000 per year would save between $929 and $1,679.

At the higher end of the salary brackets, if you are earning $180,000 this financial year you’ll receive a tax saving of $3,729. If you want to check out your exact returns per the revised 2024-25 tax rates, use the tax calculator here.

Two men handshaking

Whose borrowing capacity will benefit the most from these tax cuts?

First-home buyers will enjoy extended support schemes, while property investors should prepare for closer scrutiny of their tax returns. Additionally, all households will receive energy bill relief starting 1st July 2024.

Homebuyers will particularly benefit from this increase in after-tax income, as higher income will directly enhance borrowing power.

Jeffrey Eskaff, Head of Finance at Liviti Finance noted that a buyer earning $100,000 could see their borrowing capacity rise significantly due to the new tax cuts.

“In FY23-24, a buyer with a $100,000 income had a disposable income of $52,058.89 and a maximum borrowing capacity of $525,245.27. With the new tax cuts, in FY24-25, their disposable income will increase to $54,327.86, and their maximum borrowing capacity potentially increasing to $547,964.56. This represents a significant increase of $22,719.29, which is over 4%”, said Mr. Eskaff.

As such, the new tax cuts could see borrowers increase their borrowing capacity up to just over 4%, which is around $30,000*.

How Stage 3 Tax Cuts Can Boost Your Borrowing Capacity Featured Image Of Two Women Talking and One Of The is Smiling

Property Prices and Market Trends

Property prices have steadied in recent months, but experts warn it’s too early to declare the market bottom. Perth and Brisbane are leading the property market boom among capital cities, posting healthy price rises.

The much-anticipated rise in buyers’ budgets will likely boost price growth in the coming months.

Conclusion

As the new financial year unfolds, these changes will significantly shape Australia’s property market, influencing property values, housing demand, and overall market dynamics across capital cities and regional areas. Buyers, investors, and homeowners should stay informed to navigate these evolving market conditions effectively.

Read More: Capital Gains Tax Changes In 2024 For Real Estate

Frequently Asked Questions (FAQs)

1. What are stage 3 tax cuts?

Stage 3 tax cuts are significant changes to the Australian tax system, aiming to reduce the tax burden for most income earners by adjusting tax brackets and increasing take-home pay.

2. What are stage 3 tax cuts in Australia?

Stage 3 tax cuts in Australia involve reducing income tax rates and adjusting tax brackets to provide more disposable income to taxpayers, effective from July 1, 2024.

3. When do stage 3 tax cuts start?

Stage 3 tax cuts started on July 1, 2024.

4. What do the tax cuts for 2024 include?

The 2024 tax cuts include changes to income tax brackets, increasing the tax-free threshold, and reducing tax rates, providing significant savings for individuals across various income levels.

5. When do the tax cuts start?

The tax cuts began on July 1, 2024.

6. What is a tax cut?

A tax cut is a reduction in the amount of taxes that individuals or businesses must pay, resulting in increased disposable income and potential economic growth.

7. What does a tax cut mean?

A tax cut means a decrease in tax rates or adjustments to tax brackets, allowing taxpayers to keep more of their earnings, which can boost spending and investment.

8. How will stage 3 tax cuts affect me?

Stage 3 tax cuts will increase your take-home pay, potentially boosting your borrowing capacity and overall financial flexibility, especially if you are in the middle to higher income brackets.

9. How will tax cuts affect me?

Tax cuts will provide you with more disposable income, which can enhance your purchasing power, increase your borrowing capacity, and potentially improve your overall financial well-being.

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