Tax brackets 2021 – what are they?
Tax brackets have changed this year – for your benefit. You are already receiving extra cash in your net pay. Most people’s savings will just disappear into unnoticeable increases in discretionary spending. But if captured, this saving could be used to start building an emergency fund, start your first investment fund or buy something you will really enjoy.
Australia has a progressive tax system, which means the more you earn the more tax you pay. The top rate is 45% plus the medicare levy. For high earners, this means the more you work the less net pay you receive per hour. If for income under $180,000 you receive $70 per hour post tax, for income over this threshold, you will receive only net $55 per hour.
Optimisers can leverage their understanding of the tax code to limit annual spending to less than the net pay from $180,000. Spending less than ~ $125,000 means that income is more efficiently earned. High earners are then not forced to take an effective pay cut just to fund extravagances.
Income over the threshold can be used to fund carefully chosen investments. If these investments are negatively geared, the 45% tax refund really helps to soften losses. The commonest mistake here though is buying property because it is negatively geared. Investments should always be chosen for their fundamentals and expected return. Any tax benefits are the cherry on the top.
Understand your tax brackets, catch your tax savings from this years tax changes and get your spending under your top bracket if you can.