What’s Changing
- From 1 July 2026, the current 16% tax rate on ordinary income portions just above the tax-free threshold (up to $45,000) will be reduced to 15%. (ato.gov.au)
- Then, from 1 July 2027, that rate drops further to 14%. (ato.gov.au)
- These cuts are part of the Treasury Laws Amendment (More Cost of Living Relief) Act 2025 and are now law. (ato.gov.au)
Who Benefits
- Low- to middle-income earners: anyone with ordinary taxable income above the tax-free threshold up to $45,000 will immediately benefit from the lowest marginal rate falling to 15% from mid-2026.
- High-income earners: their top marginal rates (37% and 45% on income above $135,000 and $190,000 respectively) remain unchanged under these cuts. (ato.gov.au)
Planning Tips & Examples
- If you earn $50,000/year, you’ll save tax on the portion between your threshold and $45,000—from 16% down to 15%—and further down to 14% in 2027. Over a full year this may mean several hundred dollars saved. Use a tax estimator to see your specific benefit.
- For those earning $200,000+, even though the top rates stay the same, the first slice of income saves you money, and careful planning around deductions & non-salary income might still yield gains.
- Employers and payroll departments should be ready to update tax tables, payroll software, withholding schedules for the 2026-27 year. This includes PAYG withholding and any fringe-benefit or other applicable tax tables.
Actionable Steps
- Run your numbers: estimate your current year vs. 2026-27 tax liability and cash flow, factoring in new resident tax cuts.
- Update withholding: if you expect your income to stay stable or rise, consider adjusting PAYG withholding early so you avoid owing a large amount at tax time.
- Review deductions: if you plan investments or major purchases (e.g. for work), timing deductions or expenses just before the July 2026 rate cut can yield higher benefit.
- Seek advice early: for complex affairs (trusts, businesses, foreign income), discuss with tax advisors in advance of the new rates to optimise structure.
Bottom Line
These tax cuts are designed to reduce bracket creep and deliver cost-of-living relief. For many taxpayers, the difference in rates may seem modest (1% to 2%), but over time and across different income levels, it adds up. Planning ahead means you’ll get the full benefit from July 2026 and beyond.