Recent Changes to Income Tax Rates & Withholding
From 1 July 2026, the Treasury Laws Amendment (More Cost of Living Relief) Act 2025 will implement new tax cuts, affecting all Australian taxpayers. These include:
- The 16% personal income tax rate reduced to 15%.
- From 1 July 2027, this rate will fall further from 15% to 14%. (ato.gov.au)
- PAYG withholding tax tables updated to reflect these cuts, and thresholds for study and training support loan repayment updated too. (softwaredevelopers.ato.gov.au)
What Employers and Employees Need to Know
Employers:
- Update payroll software and tax withholding settings so that rates take effect from first pay period on/after 1 July 2026.
- Check schedules such as NAT 1004, 3539, etc., to ensure correct formulae and thresholds are used. (softwaredevelopers.ato.gov.au)
Employees:
- Take-home pay should increase slightly due to reduced taxation rate and possible changes in thresholds.
- If you have multiple jobs, second job incomes may still be taxed at higher rates unless tax-free threshold is claimed correctly.
- Higher thresholds for study and training loans may reduce repayments for some.
Practical Examples
- Single full-time employee earning AUD 70,000/year: under old schedule, more tax is withheld monthly; starting July 2026, lower rates reduce tax withheld—and your net pay goes up slightly.
- Part-time job on second payer: if you have not claimed your tax-free threshold from your second job, the new tables will still apply—ensure you decide which job to claim threshold from to reduce withholding.
What to Watch Out For
- Ensure your tax agent or payroll provider applies the new rates and tables from 1 July and not accidentally carry forward old ones.
- If your income straddles different thresholds or includes study-loan repayments, check the new thresholds to see how your repayments might change.
- Review end-of-year income projections, especially if you get bonuses or lump sums near threshold boundaries.
Summary & Takeaways
These changes represent medium-impact relief for many taxpayers. Employees will see modest increases in net pay, employers must make system changes. Acting ahead—updating payroll systems & educating staff—is the best path to seamless implementation.