What’s Changing?
Australia’s Federal Budget for 2025-26 introduced new tax cuts for every Australian taxpayer. From 1 July 2026, the tax rate for ordinary taxable income exceeding the tax-free threshold and up to $45,000 will drop from 16% to 15%. Then, from 1 July 2027, that rate will fall further to 14%. (ato.gov.au)
For incomes above $45,000, the rates remain unchanged: 30% for $45,000 to $135,000; 37% for $135,000 to $190,000; and 45% for income over $190,000. (ato.gov.au)
Who Benefits Most
- Low to moderate income earners (earning up to about $45,000) will see immediate relief in take-home pay.
- Those above $45,000 will see no change in their current bracket until after 2027 when the first bracket’s rate is reduced.
Practical Impacts
- If you earn $40,000, your tax on the portion above the threshold will be taxed at 15% (from 1 July 2026), instead of 16%.
- For someone on $90,000, only your first $45,000 (minus tax-free threshold) is affected; higher income portions retain current bracket rates.
Planning Tips Before 1 July 2026
- Delay income (if possible) to shift into the period after the tax cut takes effect, e.g. bonuses, dividends or deductions.
- Maximise super contributions or other deferred income arrangements for high earners to reduce taxable income this year.
- Prepay deductible expenses (if allowed), like professional memberships or investment-related fees, to get deductions in the current year rather than after July.
Example
| Scenario | Income | Tax Rate June 2026 (Old) | Tax Rate July 2026 (New) | Annual Tax Saving |
|---|---|---|---|---|
| A | $40,000 | 16% on taxable over threshold | 15% | ~$100 |
| B | $60,000 | 16% on first bracket only | 15% same bracket | Smaller saving, ~$50 |
Key Takeaway
The reduction in rate for the first bracket from 16% to 15% in 2026-27, then to 14% in 2027-28, delivers cost of living relief, especially for lower-to-middle income Australian taxpayers. Plan ahead now to make the most of timing deductions and taxable income. The change is law via the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024. (ato.gov.au)