Stage 3 Tax Cuts: What Australian Business Owners, Sole Traders and Taxpayers Could Save

The Stage 3 tax cuts changed Australia’s resident individual income tax brackets, but the label can be confusing because the rates have since changed again. For employees, sole traders and business owners who pay tax personally, the practical question is simpler: how much less income tax might you pay compared with the 2023–24 settings, and what does that mean for your cash flow and planning?

The answer depends on your taxable income, not simply your salary, business turnover or the amount invoiced to clients. It can also depend on other parts of your tax position, including deductions, tax offsets, Medicare-related amounts, study and training loan repayments, trust distributions and the way a business is structured.

What the Stage 3 tax cuts changed

The revised Stage 3 tax cuts were enacted in 2024 and applied to resident individual taxpayers from the 2024–25 income year. They reduced the rate applying to income between the tax-free threshold and $45,000, reduced the rate applying to a broader middle-income bracket, and moved the point at which the 37% rate began.

For context, the resident individual rates for 2023–24 were:

These were replaced for the 2024–25 and 2025–26 income years by the revised Stage 3 structure:

The legislation then changed again. As at 23 September 2026, the resident individual table for the 2026–27 income year has a 15% rate for income above the tax-free threshold up to $45,000, with the remaining thresholds and rates in the table unchanged from the revised Stage 3 structure.

This distinction matters. When people refer to “Stage 3 savings”, they often mean the reduction compared with 2023–24 tax settings. However, a current 2026–27 tax estimate should use the current 15%, 30%, 37% and 45% resident rate table, rather than the earlier 16% Stage 3 table.

How much could you save?

The following examples compare the basic resident individual income tax calculated under the 2023–24 rates with the revised Stage 3 rates, and with the current 2026–27 rates.

They assume the person is an Australian resident for tax purposes and has the stated taxable income. They exclude the Medicare levy, Medicare levy surcharge, study and training loan repayments, tax offsets, private health insurance adjustments, PAYG instalments and any special tax treatment. They are a useful guide, not a tax return estimate.

The largest reduction attributable to the revised Stage 3 structure is $3,729 a year when compared with the 2023–24 resident rate table. Under the current 2026–27 table, the maximum reduction against that same 2023–24 baseline is $3,997 a year.

The reason the saving levels off is that the revised Stage 3 changes did not reduce the top 45% rate. Once taxable income reaches the point where the full benefit of the changed brackets has been received, additional income is taxed under rates that do not increase the Stage 3 saving.

It is also important to remember that marginal tax rates do not apply to every dollar you earn. A person whose taxable income moves into a higher bracket does not pay that higher rate on all income. The higher rate applies only to the portion of taxable income that falls within that band. The Income Tax Rates Act sets rates for each relevant part of ordinary taxable income, rather than applying one rate to the entire amount.

Why taxable income matters more than turnover or salary

For an individual, taxable income is generally worked out by subtracting allowable deductions from assessable income. That means a business owner’s sales, an employee’s gross salary and a consultant’s invoiced income are not necessarily the figures used to determine their final tax bracket.

For example, a sole trader may receive income from clients during the year, but their taxable income will ordinarily take account of allowable business deductions. Depending on the facts, this may include expenses genuinely incurred in earning business income, provided the expense is properly recorded and meets the tax law requirements.

The same principle applies to someone with several income sources. Salary and wages, sole trader profit, investment income, certain trust distributions and other assessable amounts can interact in one individual tax return. The relevant question is the person’s total taxable income for the year, not the income of one activity looked at in isolation.

For sole traders, the Stage 3 changes are particularly direct. A sole trader generally declares business income in their individual tax return, rather than lodging a separate income tax return for the business itself. The net business result is therefore relevant to the individual’s personal tax position and the resident tax rates that apply.

This does not mean every sole trader will receive the same benefit. A sole trader with a business loss, low taxable income, significant tax offsets or other adjustments may see a different practical outcome from the examples above.

What the changes mean for company owners and trust beneficiaries

Business owners sometimes assume that a reduction in personal income tax rates automatically reduces tax on company profits. That is not necessarily the case.

A company is a separate taxpayer. The Stage 3 changes were changes to the resident individual tax table, not a change to company income tax rates. However, the personal rates may still matter for a company owner who receives salary, wages, directors’ fees or dividends, because those amounts may be included in the individual’s tax position under their own rules.

For example, a business owner may receive a salary from their company. That salary is assessable income to the individual and can be affected by the resident individual tax brackets. A dividend may also need to be included in the shareholder’s individual tax return, with separate rules relevant to franking credits and the company tax already paid.

Trusts require equally careful treatment. Under the general trust income rules, beneficiaries who are presently entitled to trust income may be assessed on an appropriate share of the trust’s net income. The final result can depend on the trust deed, trustee resolutions, the character of the income, the beneficiary’s circumstances and specific tax rules for capital gains and franked distributions.

The lower individual rates may be relevant where a valid trust distribution is included in an adult beneficiary’s taxable income. But this is not a reason to make rushed EOFY distributions or change a business structure without advice. Trust distributions, company payments and loans, Division 7A considerations, employment arrangements and anti-avoidance rules can all require close attention.

Use the tax cut as a cash-flow prompt, not a reason to spend blindly

A lower personal tax bill can improve cash flow, but it does not automatically create a refund or extra money in your bank account. The outcome depends partly on how much tax has already been withheld or paid through PAYG instalments.

Employees may notice the effect through reduced PAYG withholding during the year. Sole traders and business owners paying PAYG instalments may instead see the effect through their instalment calculations and final assessment, depending on their reporting method and actual taxable income.

A sensible response is to review your position before making commitments. Useful questions include:

• Is your expected taxable income materially different from last year?
• Are your PAYG instalments broadly aligned with expected profit?
• Have you set aside enough cash for income tax, GST, superannuation and other business obligations?
• Are your deductions supported by records and genuinely connected with earning assessable income?
• Are you planning to pay yourself through salary, dividends, trust distributions or a combination of methods?
• Are there expected capital gains, asset sales or unusual income items that could change your taxable income?

The tax cut should not drive deductions that do not make commercial sense. Spending $1 simply to obtain a deduction does not generally put the business ahead by $1. The better approach is to make commercially sound decisions, claim legitimate deductions and understand the tax effect before acting.

A practical business-owner scenario

Consider a sole trader whose business has become more profitable over several years. They have increased their client base, employed support staff and taken on larger projects, but their bookkeeping has not kept pace with the growth.

The lower individual rates may reduce their expected personal income tax compared with the 2023–24 settings. However, the more valuable exercise is to obtain up-to-date accounts, estimate taxable income, review PAYG instalments and identify whether business cash has been set aside for upcoming obligations.

That review may show that the owner can retain a little more cash after tax than under the old brackets. It may also reveal that business expenses, private drawings, GST commitments or superannuation obligations need more attention than the headline tax saving.

In other words, the rate change is one part of the picture. Good records and timely planning are what turn that information into a better business decision.

The key takeaway

The Stage 3 tax cuts reduced personal income tax for many Australian resident taxpayers from the 2024–25 income year. For sole traders, employees and business owners receiving taxable income personally, the benefit can be meaningful, particularly as taxable income rises through the middle brackets.

However, the current 2026–27 resident tax table is not identical to the original revised Stage 3 table. It includes a further reduction in the lowest taxable bracket rate, so current tax projections should be based on the rates that apply to the relevant income year. The law also presently provides for a further change from the 2027–28 income year, although tax planning should always be revisited when preparing for a future year.

This article is general information only and is not personal financial or tax advice. Your outcome may differ because of your income, deductions, tax offsets, business structure, trust arrangements and other circumstances. Speak with a registered tax agent or accountant, such as, for advice tailored to your situation.