What’s Changing in the Budget & Tax Legislation
The Treasury Laws Amendment (More Cost of Living Relief) Bill 2025, now given Royal Assent (Act No 28 of 2025), introduces several important reforms effective from 1 July 2026. Key among them:
- The personal income tax rate on taxable income between AU$18,201-45,000 will drop from 16% to 15%, then further to 14% from 1 July 2027. (au.andersen.com)
- The Medicare levy low-income thresholds have been increased (individuals, families and pensioner thresholds) retroactively from the 2024-25 year. (au.andersen.com)
Strategic Impacts on Tax Planning
These changes create new opportunities to minimize tax liabilities and optimize cashflow:
- If you're close to boundary between $45,000-$120,000 incomes, planning deductions or income-shifting may help leverage the lower tax rate bracket.
- Prepaying deductible expenses before 30 June 2026 could reduce taxable income that year.
- Consider whether you can reallocate income (e.g. via trusts) to beneficiaries in lower income brackets.
Fringe Benefits, Salary Packaging & Investments
- Salary packaging arrangements may be adjusted to take advantage of upcoming lower personal rates.
- Investments generating taxable income (e.g. dividends, interest) may see increased tax savings under the reduced rate tiers.
- For high income earners, look at maximizing contributions to concessional super or deductible items before thresholds shift too high.
Example Scenario
Sarah earns AU$43,000/year. Under the new rates:
- From 1 July 2026, her first bracket (AU$18,201-45,000) taxed at 15% instead of 16% — saving roughly AU$10-AU$20/month.
- From 1 July 2027, taxed at 14% — roughly double that saving.
- If she regularly makes deductible contributions or incurs deductible expenses, timing them towards fiscal years before July 2026 may slightly reduce tax, but gains are more meaningful post-cut.
Timing and Common Pitfalls
- Deductions claimed after 30 June 2025 will use current thresholds; be strategic with prepaid expenses or investments with deductible exposure.
- Beware of income shifting that could push someone out of eligibility for offsets or benefits.
- Fringe benefits valuations or reportable fringe benefits? These might interact with adjusted thresholds or Medicare levy calculations.
Actionable takeaway: Review salary and investment income forecasts for FY2025-26 and FY2026-27. Engage with your financial and tax advisor to model potential savings from brackets drops and threshold increases. Then, implement changes or investments ahead of 1 July 2026 where they offer clear tax benefit.