Overview of the Upcoming Tax Cuts
Australia's Treasury Laws Amendment (More Cost of Living Relief) Act 2025 brings significant changes to personal income tax rates starting 1 July 2026, with further adjustments from 1 July 2027. (ato.gov.au)
- From 1 July 2026, the 16% bracket will be lowered to 15%. (ato.gov.au)
- From 1 July 2027, the 15% bracket will be reduced further to 14%. (ato.gov.au)
This is in addition to measures that lift the thresholds for the Medicare levy low-income exemptions. (ato.gov.au)
Tax Planning Implications & Strategies
With tax brackets changing, there are actionable strategies individuals can take now to manage their tax burden over the transition.
1. Timing Income & Deductions
If you expect a large income event (e.g., bonuses, selling an asset):
- Defer it into the 2026-27 year if it keeps you in a lower bracket under the new 15% rate.
- Accelerate deductible expenses into the current 2025-26 year (pre-1 July 2026) to meet higher marginal rates now.
2. Superannuation Contributions
With rate cuts, pre-tax income will stay with taxpayers instead of flowing into higher tax on contribution.
- Consider salary sacrificing now to reduce taxable income in current year.
- Review timing of those contributions; starting 2026-27, after-tax income holds more value under lower rates.
3. Investment & Withholding Considerations
If you receive investment income subject to withholding, or dividends:
- Ensure you're using correct withholding rates; you may be eligible for better rates if you fall into the new lower brackets.
- Assess whether altering asset sales or timing CGT events can leverage lower rates.
When These Changes Become Effective
| Date | What Changes |
|---|---|
| 1 July 2026 | 16% bracket becomes 15%; Medicare levy low income thresholds increased. (ato.gov.au) |
| 1 July 2027 | 15% rate reduced to 14% for lowest taxable bracket. (ato.gov.au) |
Practical Examples
- Sue, earning $40,000 taxable income: pre-1 July 2026 pays tax at 15%; from that date, at 15% (same rate, but rate structure adjustments may impact credits/levies). From July 2027, she pays 14% on her lowest rate portion.
- Alex, earning $50,000: only income up to $45,000 (or threshold floor) falls in lowest bracket; the remainder taxed at higher tiers remains unchanged. Planning around the bracket cutoff becomes more valuable.
Action Steps Before Changes Kick In
- Review last tax return: Identify income near bracket thresholds.
- Plan large incomes or asset sales: Could timing shift into later years where lower rates apply?
- Talk to agent: Ensure tax withholding & PAYG estimates reflect upcoming brackets.
- Update payroll/software: Employers & payroll services must update tax tables. ^
Note: These are legal changes passed as law. These cuts are not proposals but enacted measures. (ato.gov.au)
The takeaway: These tax cuts offer real savings. For lower- and middle-income earners especially, strategic decision-making around timing and deductions before these rate changes can enhance benefits.