Overview
Australia’s Federal Budget 2025–26 introduced stage-three tax cuts that further reduce the tax burden for those in the lowest marginal rate bracket. These changes take effect from 1 July 2026 and 1 July 2027 under the Treasury Laws Amendment (More Cost of Living Relief) Act 2025. (ato.gov.au)
What’s Changing
| Income Range | Current Rate | Rate from 1 Jul 2026 | Rate from 1 Jul 2027 |
|---|---|---|---|
| $18,201–$45,000 | 16% | 15% | 14% |
| Above $45,000 and up to $135,000 | 30% | 30% | 30% |
| Above $135,000 and up to $190,000 | 37% | 37% | 37% |
| Over $190,000 | 45% | 45% | 45% |
The tax-free threshold remains unchanged. (ato.gov.au)
Impacts by Income Bracket
- Low-income earners moving from taxable income in the $18,201–$45,000 range will see savings immediately in the 2026-27 year, increasing in 2027-28.
- Middle-income earners (above $45,000) will benefit less directly since their marginal rates stay the same, but bracket creep relief still helps as thresholds adjust.
- High earners are unaffected rate-wise, though future policy changes (being discussed) may touch areas like capital gains and trusts. (en.wikipedia.org)
Examples
- A worker earning $40,000/year currently pays $5,200 in taxes at 16%. From 1 July 2026, that drops to $6,000 taxable; at 15%, they’ll pay $6,000 × 15% = $900, saving roughly $260/year. In 2027-28 at 14%, the same income yields larger savings.
- Someone earning $100,000 remains in the 30% marginal rate throughout—significant savings only if income is restructured (e.g. splitting income via super or trusts).
Actionable Advice
- Review withholding and payroll settings: Employers should update calculation software by mid-2026 to use new rates.
- Budget for 2026/27: Individuals should project tax liabilities with the new rates and consider prepaying deductions (e.g. interest or deductible work expenses).
- Tax planning with trusts/entities: Consider if distributing income downwards to lower tax rate beneficiaries is feasible, while ensuring legality.
Key Takeaways
- The cuts are law, not just proposals. (ato.gov.au)
- Low earners will benefit most, especially from 2027-28.
- Middle and high earners should stay alert for possible future reforms, particularly around trusts and capital gains.
- Everyone should confirm that their tax professional or payroll system is ready for the change.
Final Thoughts
These stage-three cuts are part of Australia's broader cost-of-living tax relief efforts. If you're earning in the lower bracket, this is good news. For others, opportunities arise via smart planning to make the most of what's on offer—and preparing now means fewer surprises later.