Tax Planning
How Australia’s Upcoming Tax Cuts Could Reshape Your Tax Planning Strategy
From July 2026 Australians will see cuts to the lowest marginal tax rate and higher Medicare levy thresholds — a window to reframe investment, salary packaging, and fringe benefits strategies.
By NomadicTax Research Team • 5-8 min read • February 24, 2026
## 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](https://au.andersen.com/april-2025-monthly-tax-update/?utm_source=openai))
- The **Medicare levy low-income thresholds** have been increased (individuals, families and pensioner thresholds) **retroactively from the 2024-25 year**. ([au.andersen.com](https://au.andersen.com/april-2025-monthly-tax-update/?utm_source=openai))
## 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.