The changes affecting property buyers, owners and investors from July 1

Most taxpayers will see their take-home pay rise as a result of the stage three tax cuts coming into effect, with the increase to incomes raising the maximum amount of money that buyers can borrow.

The increase to buyers’ budgets is expected to provide a tailwind for price growth in the months ahead, partially offsetting the affordability challenges facing buyers as a result of high interest rates.

But while the adjustment to tax rates is the biggest change affecting the property market in the new financial year, it’s not the only one.

First-home buyers will also benefit from an extension of support schemes, while property investors’ tax returns will be heavily scrutinised, and all households will get energy bill relief starting July 1.

1. Tax cuts set to boost borrowing capacities

One of the major changes in the new financial year is an adjustment to tax rates that will reduce the amount of tax that all income earners pay.

The reduction in tax will depend on income levels. Tax rates will be reduced for lower income brackets, while the income threshold for higher tax rates has been increased, meaning people would need to earn more money before being taxed at a higher rate.

How tax rates will change from July 1

An individual earning the average full-time annual salary of $98,098 would save $2131 per year, according to the federal government’s tax cut calculator available online.

Someone earning $50,000 per year would save $929, while a high income earner on $200,000 per year would save $4529.

Most taxpayers will start seeing their tax cuts reflected in payslips from July 1.

While everyone will benefit from more money in their bank account each week, homebuyers will get the added advantage of an increase to their borrowing power as a result of higher after-tax income. 

Income is one of the largest factors that influences borrowing capacity, as a higher income allows a borrower to afford higher repayments.

Mortgage Choice broker James Algar said a buyer with a $100,000 income could see their borrowing capacity increase by about $25,000 as a result of the tax cuts, while someone earning $150,000 could borrow about $37,000 more.

That’s based on an owner occupier with a single income, with an interest rate of 6.19%, a loan-to-value ratio of 80% or less, and a 30-year loan term.

Read more: Compare home loan interest rates

Mr Algar said couples would benefit even more as a result of shared expenses.

“A household with two adults doesn't have twice the living expenses,” he said. “You’ve got one set of bills, council rates and utility costs and not double the amount of groceries.’

“It would have at least double the impact, assuming they’re earning similar incomes,” 

Borrowing capacities have fallen by about 30% since interest rates started rising in May 2022.

Tax cuts are expected to increase borrowing capacities, giving a boost to the affordable end of the market typically targeted by first-home buyers. Picture: Getty

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While Mr Algar cautioned against borrowing the absolute maximum, he said tax cuts would have a meaningful impact for many borrowers, especially first-home buyers.

“It’s definitely going to help people.” Mr Algar said. “People are still buying at their limits in many cases.”

PropTrack senior economist Paul Ryan said the tax cuts would provide a slight boost to the lower end of the market, given first-home buyers are typically most constrained by borrowing capacities.

2. Crackdown on dodgy tax deductions

The Australian Tax Office has warned property investors against claiming dodgy deductions on their tax returns, which it estimates could be costing the government $1.2 billion a year.

Incorrectly claimed interest is responsible for 42% of that figure, according to the ATO.

Investors can claim interest paid on the amount borrowed to purchase a rental property as a deduction. 

Read more: Property tax deductions

But according to the ATO, investors who redraw or refinance an investment loan commonly try to claim interest on money used for other expenses, such as cars, school fees or holidays.

The Australian Tax Office says some property investors are claiming interest costs for money borrowed to buy cars and holidays as tax deductions. Picture: Getty

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“If you have an $800,000 mortgage for a rental property and then add $50,000 to the loan to upgrade your family car, you can only claim the interest on the initial $800,000, not the interest on $850,000,” said ATO assistant commissioner Rob Thomson.

Other common mistakes include claiming costs for repair, maintenance and upgrades incorrectly.

Mr Thomson said some investors “double-dipped” by claiming these expenses a second time within property management invoices, while others tried to claim large expenses in a single year instead of across a longer period.

“There is a bit of a myth that all expenses can be claimed immediately,” Mr Thomson said.

“A repair can usually be claimed straight away but capital items — think dishwashers, curtains or heaters — can only be claimed immediately if they cost $300 or less, otherwise they need to be claimed over time.”

Investors have flocked back to the market this year, with the latest Australian Bureau of Statistics data showing the value of investor lending is up 36% compared to a year ago.

3. First-home guarantee extension

The First Home Guarantee, which allows eligible first-home buyers to purchase a home with a deposit as low as 5%, will continue in the 2024-25 financial year, although the number of places is yet to be determined and will be announced on July 1.

Under the scheme, up to 15% of the value of the property is guaranteed by Housing Australia, enabling buyers to purchase with a smaller deposit without paying lenders mortgage insurance. 35,000 places were available in the 2023-24 financial year.

From July 1 more places will be available for the First Home Guarantee scheme, which allows first-home buyers to purchase a home with as little as 5% deposit without paying lenders mortgage insurance. Picture: Tom Parrish

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To be eligible, first-home buyers need to meet certain criteria, including earning $125,000 or less for individuals or $200,000 or less for joint applicants and having a deposit between 5% and 20% saved.

Property price caps vary between cities and regions, and buyers need to apply through a participating lender.

4. Energy bill rebates begin

Every household will receive a $300 energy rebate, automatically applied on electricity bills in quarterly instalments across the 2024-25 financial year. Businesses get a $325 rebate.

Electricity prices jumped about 20% in the 2023-24 financial year, but the Australian Energy Regulator now expects electricity prices to fall from July for most residential electricity customers, regardless of the rebate.

Wholesale electricity costs have fallen by up to 21%, but increased running costs for the electricity network mean prices will only fall by between 1% and 6% for most customers, the AER chair Clare Savage said.

“The combined effect of these various changes in costs have resulted in prices decreasing in New South Wales and South Australia, and increasing in South East Queensland,” she said.

5. New Victorian property tax kicks in

Stamp duty will gradually be abolished for commercial and industrial properties in Victoria, such as retail, offices and warehouses, starting in the new financial year.

Commercial and industrial properties that are sold after July 1 will enter the commercial and industrial property tax (CIPT) system.

Commercial and industrial properties sold after July 1 will enter into the new property tax system. Picture: Getty

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Stamp duty will still apply for this transaction, although eligible purchases have the option of accessing a government loan to cover the stamp duty payment.

An annual tax of 1% of the property’s land value will begin to apply to the property 10 years after the transaction.

When the property is sold again in the future, it will be exempt from stamp duty.

Change of use duty also applies if a commercial or industrial property that has entered into the scheme is later converted to residential, such as a warehouse being redeveloped into apartments.