What’s Changing?
- From 1 July 2026, the 16% tax rate on taxable income between A$18,201 and A$45,000 will be reduced to 15%. (ato.gov.au)
- From 1 July 2027, it will drop further to 14% for the same bracket. (ato.gov.au)
- These are part of the More Cost of Living Relief measures passed in the Treasury Laws Amendment (More Cost of Living Relief) Act 2025. (ato.gov.au)
Who’s Most Affected?
| Income Range | Current Rate | Rate from 1 July 2026 | Rate from 1 July 2027 |
|---|---|---|---|
| A$18,201–A$45,000 | 16% | 15% | 14% |
| Above A$45,000 | No change | N/A | N/A |
If you currently earn within the A$18,201–45,000 range, you’ll see greater take-home pay starting mid-2026. For earners above that, your marginal tax rates stay the same.
Tax Planning Opportunities
- Boost deductible expenses: Prepay allowable expenses before the round-off date of 30 June 2026; this maximises deductions under the current 16% rate before the drop.
- Salary packaging: If possible, front-load expenses or investments to claim deductions or offsets now.
- Review shared income structures: Couples or trusts should reassess income allocations if lower brackets are impacted. For example, splitting income into the A$18,201–45,000 bracket of a lower-earning spouse could yield savings.
- Delay large capital gains: Unless needed urgently, consider deferring selling capital assets until after the tax‐rate shift where applicable, especially for those with gains that would fall into that affected bracket.
Compliance Reminders
- Adjust payroll withholding tables if you're an employer, and let staff know about expected changes to their take-home pay.
- Update budgeting plans for the transition years. Big jumps in heartland income brackets won’t be repeated, so ensure you don’t overestimate deductions or offsets.
- Check whether any other relief (like the increases in Medicare levy low-income thresholds) also impacts your tax; those are also coming into force with the same Act. (ato.gov.au)
Example
Maria is a single earner with taxable income of A$40,000. Under current law, she pays 16% marginal tax, meaning tax on the portion from A$18,201 to A$40,000 at 16%. From 1 July 2026, she’ll pay 15% on that same range, saving about A$100–A$150 for the full year. From 1 July 2027, her saving increases further because the rate drops to 14%, adding another ~$100 in savings. Over two years, that’s a few hundred dollars extra in her pocket.
What to Do Now
- Speak to your employer or payroll provider to ensure your withholding amounts are aligned with your projected income once rates change.
- Consult with a tax adviser if you have variable income or are part of a trust or partnership to make sure you aren’t caught off guard.
- Use online budget calculators to project household income changes. Small adjustments in deductions or rate thresholds can make a meaningful difference.
Bottom line: If your income sits in the A$18,201–45,000 bracket, these upcoming tax cuts are good news. Plan now to maximise opportunities and minimise surprises.