Overview of the Tax Cuts
The Treasury Laws Amendment (More Cost of Living Relief) Act 2025 introduced major changes:
- From 1 July 2026, the personal income tax rate that was set at 16% will be cut to 15%. (ato.gov.au)
- From 1 July 2027, that rate will reduce further to 14%. (ato.gov.au)
- The Medicare levy low-income thresholds are being increased so that lower-income taxpayers have reduced or no levy burden. (ato.gov.au)
Who Benefits the Most
- Individuals earning taxable income where the middle tax rate (previously 16%) applies—often middle to upper-middle income earners.
- Taxpayers in or moving into income ranges that cross the threshold between the old 16% bracket and now lower rate.
- Low-income earners who may now exit paying the Medicare levy due to adjusted thresholds.
Examples
- Sarah, taxable income $60,000, previously taxed at 16% on the middle bracket will save: on that portion, approximately 1% of around $20,000 of income in that bracket, translating to $200 saved annually starting 1 July 2026.
- Tom, earning $45,000, previously paying Medicare levy under old thresholds may now be fully exempt or pay less levy due to threshold increases.
Planning Tips
- Estimate changes to withholding: your employer or PAYG instalments may adjust withholding so plan cash flow accordingly when modified tax tables are released. (softwaredevelopers.ato.gov.au)
- Time income and deductions: if expecting income in 2026–27 which puts you into higher brackets, consider accelerating deductible expenses before 1 July 2026.
- Update tax software or payroll settings early to ensure correct withholding from the start. Many tax tables were updated and apply from 1 July 2026. (softwaredevelopers.ato.gov.au)
Important Dates and Compliance Items
- 1 July 2026: Tax cuts being enacted—16% rate → 15%; adjusted Medicare thresholds. Withholding rates will reflect these changes from that date. (ato.gov.au)
- Mid-June 2026: Updated tax tables and schedules to be published on ATO website for withholding schedules. (softwaredevelopers.ato.gov.au)
Pitfalls to Avoid
- Assuming immediate savings—if your income isn’t in the impacted bracket, changes may be minimal.
- Waiting too long to adjust payroll setups—if errors occur, refunds may be slow and compliance issues may arise.
- Ignoring Medicare levy threshold changes, which could mean overpaying during earlier parts of the year.
Effective tax planning now means reviewing your expected income, deductions and ensuring you're ready to take advantage of these new rates from 1 July 2026.