Australia's 2025-26 Federal Budget passed legislation bringing tax cuts that will benefit every Australian taxpayer starting 1 July 2026, with further cuts from 1 July 2027. Let’s look at who wins, what changes, and how to plan. (ato.gov.au)
What the New Tax Cuts Involve
The Treasury Laws Amendment (More Cost of Living Relief) Act 2025 enacts the following rate reductions for resident taxpayers:
- From 1 July 2026: reduce the 16% marginal rate to 15% for incomes over the tax-free threshold up to $45,000.
- From 1 July 2027: reduce that same marginal rate further down to 14%. The other marginal rates (30%, 37%, 45%) remain the same. (ato.gov.au)
Who Benefits Most
Middle-income earners just above the tax-free threshold will see noticeable gains in disposable income. For example:
Example 1: Alice earns $50,000 per year. Under the old system, the first $45,000 taxed at 16%, next portion at 30%. With cuts, that first slice drops, meaning ~$225/year extra from July 2026, more from July 2027.
Example 2: Ben earns $90,000. His gains are similar—but proportionally smaller, since much of his income is taxed at higher brackets. Still meaningful over time.
Lower earners under the tax-free threshold see no change to their marginal rate, but may benefit from rising thresholds (e.g. Medicare levy thresholds) via separate measures. Meanwhile, high-income taxpayers see little immediate effect except for accumulated benefit from inflation adjustments.
Timing and Planning Considerations
- Delay discretionary income (like some bonuses) into financial years starting 1 July 2026 if it may fall into the lower bracket. That can shift more of that income into the lower rate.
- Accelerate deductions, prepay eligible expenses before 30 June 2026 when appropriate.
- Revisit investment income, particularly for rental properties or certain trusts, to understand shifting net-income computations.
- Monitor Medicare levy low-income threshold changes which may change together with these tax cuts.
Impact Beyond Individual Take Home
- Employers may see increased net pay demands; payroll systems will need early updates.
- The ATO and Treasury anticipate revenue loss in early years but frame this as relief for cost-of-living pressures.
- Government forecasts project this measure will generate savings for taxpayers while gradually reducing bracket creep.
Overall, for middle-income earners, these tax cuts offer real financial relief, particularly during times of economic pressure. With strategic planning, individuals and households can maximise the benefit early.