July 2024 | 6 min read

Putting your tax savings to good use

By Tony Kaye, Senior Personal Finance Writer

Investing Strategy

Consider deploying your extra cash as part of a regular investing strategy.

Millions of Australians are about to start receiving their first pay packet for the 2024-25 financial year, and it should contain some extra cash.

In fact, according to the federal government, all 13.6 million Australian taxpayers will have received an income tax cut from 1 July 2024 following its previously announced “Stage 3” changes to individual tax rates and thresholds.

Most taxpayers will see the income tax cuts come through their net pay packet straight away, while others will receive their tax cut when their tax return is lodged and processed after the end of the 2024-25 financial year.

The table below shows all the income tax changes, which have come into effect at the same time as a series of regulatory changes to the superannuation system. They include a 0.5% lift to the compulsory Superannuation Guarantee levy to 11.5% per annum. (Also read The superannuation changes from 1 July).

Thresholds in 2023-24 ($)	Rates in 2023-24 (%)	Thresholds in 2024-25 ($)	Rates in 2024-25 (%)
0 – 18,200	Tax free	0 – 18,200	Tax free
18,201 – 45,000	19	18,201 – 45,000	16
45,001 – 120,000	32.5	45,001 – 135,000	30
120,001 – 180,000	37	135,001 – 190,000	37
Over 180,000	45	Over 190,000	45

^Source:^{Australian Government. The above rates do not include the Medicare levy of 2%.}

How much extra you receive in your take-home pay ultimately comes down to your salary level.

The government has published an example of a person earning $90,000 per annum who previously paid $21,517 in income tax, including the 2% Medicare levy in 2023-24.

On the same salary they will get an annual income tax cut of $1,929 in 2024-25. This equates to just over $37 per week in extra cash, or $160.75 per month.

Taking a long-term view

Cost of living pressures are front of mind for many Australians, and having a bit more cash may go some of the way to covering day-to-day expenses.

Alternatively, those not necessarily “needing” extra cash could consider investing it as part of a regular investing strategy.

Many investors set up a regular investing plan using their accumulated savings so they keep adding to their holdings and take advantage of compounding investment returns over the long term.

An advantage of investing this way is that, rather than trying to pick a good time to invest, buying at different times allows you to average out your total cost of investing. This strategy is known as dollar-cost averaging.

In many ways dollar-cost averaging replicates what your workplace super contributions are doing but with the advantage that you can access the money at any time for personal goals – house deposit, holiday, education expenses – compared with super, which is locked away until retirement.

Putting a set-and-forget system in place, such as an automatic transfer to your investment or savings account each payday, could be useful. That way, you don’t have to make any decisions about saving more or spending more each month.

Vanguard’s Personal Investor platform provides “Auto Invest” functionality, enabling investors to make fortnightly, monthly or quarterly investments from a linked bank account into exchange traded funds (ETFs) and managed funds.

Just like your super contributions, investing on a regular basis is all really about sticking to a disciplined, non-emotional approach to investing that’s not affected by what’s happening on financial markets at any point in time.

Making regular investments, and taking advantage of dollar-cost averaging, really adds up.

They’re a powerful combination in helping you to focus on achieving your investment goals, ideally through an appropriately diversified portfolio, to give you the best chance of investment success over the long term.

^{Important Information}

^{Any investment is subject to investment and other known and unknown risks, some of which are beyond the control of Vanguard Investments Australia Ltd (VIA), including possible delays in repayment and loss of income and principal invested. Please see the risks section of the Product Disclosure Statement for the relevant VIA product for further details. No Vanguard company, nor their directors or officers give any guarantee as to the performance or rate of return of any Vanguard product, amount or timing of distributions, capital growth or taxation consequences of investing in the relevant product.}