What’s Changing
Effective 1 July 2026, the tax rate for ordinary taxable income between the tax-free threshold and $45,000 will drop from 16% to 15%. A further reduction to 14% for that same band will kick in from 1 July 2027. These cuts are part of new legislation — the Treasury Laws Amendment (More Cost of Living Relief) Act 2025 — designed to deliver tax relief to all Australian taxpayers.(ato.gov.au)
Why It Matters
- Bracket creep relief: As incomes rise, many taxpayers get pushed into higher rates despite modest real gains. Lowering the 16% band helps slow that drift upward.(ato.gov.au)
- Cost-of-living support: With rising inflation, small extra income becomes more precious. These cuts give every taxpayer a little more breathing room.(ato.gov.au)
Example Scenarios
| Situation | Before July 2026 | After July 2026 | After July 2027 |
|---|---|---|---|
| You earn $40,000 taxable income | First $18,200 taxed at 0%; next $21,800 at 16% | Same thresholds, but the $21,800 taxed at 15% | Then taxed at 14% |
| Extra take-home for lower band only case | – | ~$218/year more immediately | Slight further increase in 2027 |
If you earn $60,000, only the portion from $18,200 up to $45,000 benefits. Income above that remains taxed at existing higher bands.|
What You Can Do Now
- Review your PAYG withholding. Your employer’s tax table should reflect revised rates, but double-check whether you're having too much withheld.
- Adjust budgeting. Even modest savings can accumulate — put increased net pay toward debt, savings or inflation-buffered costs.
- Think ahead for 2027/28. If you expect your income to push you into a new band, plan around the second phase of the tax cut.
- Invest smartly. While your tax rate is lower at the bottom end, marginal returns on deductible expenses may shift — seek advice if considering claims or structure changes.
Risks and Caveats
- Non-resident taxpayers and working holiday makers are not affected by the reduced 16% band. Their rate schedule remains unchanged under this law.(ato.gov.au)
- The tax cuts help lower bands most; those with income primarily in higher brackets see less percentage benefit.
- Budget and policy changes can be subject to political shifts, though this measure has already passed into law.(ato.gov.au)
Bottom Line
If your ordinary taxable income is between $18,200 and $45,000, you’ll pay significantly less tax from mid-2026 — and even less from mid-2027. Fit the change into your cash flow plan now so you’re ready to maximise your take-home pay.