What’s Changed in Income Tax Rates
As part of the 2025-26 Federal Budget, Australia introduced new tax cuts for every Australian taxpayer, now law. (ato.gov.au) Two major changes are coming:
| Effective Date | Key Change |
|---|---|
| 1 July 2026 | The 16% marginal rate is reduced to 15% for the income bracket just above the tax-free threshold. (ato.gov.au) |
| 1 July 2027 | The 15% rate (which was 16%) is further reduced to 14%. (ato.gov.au) |
Other brackets above $45,000 remain unchanged: 30%, 37%, and 45%. (ato.gov.au)
How This Affects Your Net Income
- If you earn above the tax-free threshold but under $45,000, you benefit the most—your marginal rate drops first to 15% (2026-27) and then 14% (from 2027-28 onward).
- For incomes above those thresholds, no change in marginal rates means smaller dollar savings for higher earners.
- Example: Someone earning $50,000 currently pays 16% on income between the tax-free threshold and $45,000, and 30% above that. Under the new law, the portion up to $45,000 drops to 15%, lowering total tax payable by several hundred dollars annually. With the 2027 cut, savings grow further.
Planning Tips & What You Can Do Now
- Reassess your withholdings or PAYG instalments: With a lower rate, ensure you’re not overpaying during the year. Adjust your PAYG withholding if needed.
- Revise budgeting: More take-home pay gives breathing room for debt repayment, savings or investing. Adjust your budget to make the most of the change.
- Annual contributions or deductions timing: If you’re close to the end of financial year, timing expenses or deductions could yield greater benefit under new rates. Consult your tax advisor.
- Longer-term planning: If earning is expected to stay within lower brackets, the 2027 rate cut to 14% increases incentives for low to middle income earners to structure earnings and manage deductions wisely.
Who Benefits — and Who Doesn’t
- Low to middle income earners benefit proportionally more, as they pay more of their income in the bracket being lowered.
- Higher income earners (over $45,000) see small gains, since only the portion within the lowered bracket changes.
- Self-employed with variable income should monitor quarterly (or monthly) income projections to adjust obligations and avoid surprise tax burdens.
Key Takeaways
- The rate for the first taxable bracket will drop to 15% from 1 July 2026, then 14% from 1 July 2027.
- Most savings are for those in the lower bracket (just above the tax-free threshold).
- Revisit your PAYG, budget, and deduction timings to optimize these changes.
With law now in place, planning proactively ensures you make the most of these rate cuts.