Tax Planning
Maximising Savings with the Upcoming Personal Income Tax Cuts (2026-27 & 2027-28)
The 2025-26 Budget brings gradual but meaningful tax cuts for low-and middle-income Australians from 1 July 2026 and further in 2027 — learn how to plan now to maximise benefits.
By NomadicTax Research Team • 7 min read • March 16, 2026
## Overview of the Changes
The Australian Government has legislated tax rate reductions for the 16% marginal rate bracket covering income from **A$18,201 to A$45,000**. Specifically:
- From *1 July 2026*, the 16% rate drops to **15%**.
- From *1 July 2027*, that same bracket rate falls further to **14%**. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/individuals/personal-income-tax-new-tax-cuts-for-every-australian-taxpayer?utm_source=openai))
These changes are part of the **Treasury Laws Amendment (More Cost of Living Relief) Act 2025**, passed into law in March 2025. ([au.andersen.com](https://au.andersen.com/wp-content/uploads/2025/04/AA_AU_AUSTRALIA_TAX_UPDATE_April-2025.pdf?utm_source=openai))
---
## Who benefits most
- Individuals earning in that bracket (A$18,201–A$45,000) see immediate rate relief.
- Middle income earners with multiple income streams may also benefit as these cuts reduce bracket creep and marginal rates at critical points.
- Pay-as-you-go (PAYG) systems may need adjustment by employers so that withholding aligns with new rates once effective dates arrive.
---
## Planning strategies to maximise benefit
- **Review withholding allowances or deductions** — if you usually have PAYG adjusted through accumulation of deductions or investments, ensure you’re leveraging every allowable deduction before rates change.
- **Defer income (if possible)** — for small business owners or freelancers, carrying income into the 2026-27 year could result in lower overall marginal tax for income in the base bracket.
- **Prepay deductible expenses** in prior years where timing allows, e.g., subscriptions, repairs, or charitable donations, to use deductions while higher rate applies just before cut.
---
## Examples for various scenarios
| Taxpayer | Current situation / Cut effect | Strategy suggestion |
|---|---|---|
| Sole trader earning A$40,000 | Moving from 16% to 15% in July 2026 -> tax cut ~A$100-150 | Delay invoicing until after 1 July so some income falls in new lower rate year |
| Part-time employee earning A$25,000 + small investments | New rate reduces PAYG withheld | Check investments with holding tax, itemise deductions in current year |
| Household with two incomes | Combined income partly triggers higher brackets | Shift deductions or assets to spouse in lower bracket where possible |
---
## Caveats and transitional matters
- These rate reductions **do not change other tax brackets** — only the 16% bracket is affected.
- Remember the **Medicare levy low income thresholds** will also increase, helping low earners avoid or reduce the Medicare levy burden. ([ashurst.com](https://www.ashurst.com/en/insights/australia-federal-budget-2025-2026-key-tax-measures/?utm_source=openai))
- Tax planning must always consider the whole fiscal year; expecting rates to change midway doesn’t permit pro-rating in many cases.
---
Start exploring what changes you can make now — review current withholding, organise expenses, consult with your accountant — so you receive maximum benefit once these tax cuts kick in.