What’s Changing?
- From 1 July 2026, the marginal tax rate on ordinary income between $18,201 and $45,000 is dropping from 16% to 15%. (ato.gov.au)
- From 1 July 2027 and beyond, that same range will reduce further to 14%. (ato.gov.au)
- All other marginal rates (30%, 37%, 45%) remain as they are. (ato.gov.au)
Who Benefits and How Much
- Low to middle income earners (earning between $18,200–$45,000) will see the biggest proportional benefit early. For example, someone in that bracket may see hundreds of dollars extra each year once thresholds shift.
- Middle and higher income earners won’t see rate reductions in higher brackets, but lowering the base rate helps even small steps. Also helps with bracket creep, where inflation pushes people into higher tax brackets over time.
Planning Tips
- Update withholding or PAYG estimates: Once the legislation is in effect, your employer or your PAYG instalment amounts could change. Monitor your pay and adjust if necessary.
- Review deductions & offsets: Slight changes to tax rates may affect tax planning around itemised deductions or offsets like work expenses or investment losses.
- Super contributions: Additional savings here may compound at your marginal rate—changes to your take-home can free up room to contribute more.
Example Scenario
Lena earns $40,000 annually. Under the current law, she pays 16% on taxable income between $18,200–$45,000. Under the new law starting 1 July 2026, that portion is taxed at 15%. That translates to around $130–$140 extra in annual take-home pay. Then, from 1 July 2027, it increases again.
What to Be Aware Of
- These changes don’t apply until the 2026–27 financial year. Nothing changes yet for 2025–26. (ato.gov.au)
- The Medicare levy low-income thresholds are also being adjusted with effect from some prior years and continuing. This can provide additional savings or reduce levies for lower income earners. (ato.gov.au)
- Non-residents and working holiday makers may not get all the benefits because some rate changes apply only to Australian resident taxpayers. (ato.gov.au)
Actionable Steps
- For employees: keep an eye on pay slips after 1 July 2026. See what rate you’re being withheld at.
- For employers & payroll providers: update withholding tables after legislation becomes law and communicate with staff.
- For financial advisors: re-project client cash flows with new rates to see impact on budgeting, super contributions, personal investments.
This change, while incremental, helps address cost-of-living pressure and ensures the tax system keeps pace with income movements. Starting small but stepping in the right direction toward fairness and relief for many Australians.