Background: What’s Changing and What’s Effective
The Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024 took effect in 2024-25 and made significant changes to income tax rates and Medicare levy low-income thresholds.(ato.gov.au)
Additionally, the Treasury Laws Amendment (More Cost of Living Relief) Act 2025 (Act No. 28 of 2025) further expanded tax cuts and raised low-income thresholds.(ato.gov.au)
Key Changes to Be Aware Of
- From 1 July 2024, several marginal tax rates changed: for example, the 19% rate fell to 16%, the 32.5% rate dropped to 30%.(ato.gov.au)
- Effective 1 July 2026, the 16% rate (for the income bracket $18,201-45,000) is reduced to 15%, and further to 14% from 1 July 2027 under Budget 2025-26 measures.(deloitte.com)
- The Medicare levy-low income thresholds were increased by 4.7% to relieve lower income earners. For singles, for example, the threshold is now ~$27,222.(ashurst.com)
Tax Planning Strategies to Maximise Benefit
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If your income is near the top of the $18,201-45,000 bracket, consider deferring or accelerating income depending on your cash flow to maximise tax savings when new rates apply.
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Review deductible expenses: timing of deductible items like investment-related expenses or educations costs could influence whether they fall in a higher or lower rate period.
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For retirees and pensioners, updated thresholds for Seniors Australians Pension Offset (SAPTO) now mean you may retain more income before crossing into higher brackets.(ato.gov.au)
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If you’re a family or have dependents, monitor changes to family income thresholds and coordinate income among partners if possible.
Illustrative Examples
Example 1: Sarah earns A$45,000/year — under current rules her income from $18,201-45,000 is taxed at 16%. From 1 July 2026, that portion will be taxed at 15%, giving her an annual saving.
Example 2: Mark earns A$30,000 and qualifies for Medicare levy exemption threshold under the new rules — the increase in threshold means he might now be exempt or pay reduced levy, depending on dependent status. This means more net income each pay period.
Example 3: For pensioners or senior Australians, previously a spouse-based income threshold shade-out might have impacted SAPTO — now with higher thresholds, the benefit may be preserved longer before being phased out.(ato.gov.au)
Things to Consider and Risks
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These changes are already law, so delaying action risks missed opportunities. The initial Cost of Living Tax Cuts Act is in force; the “More Cost of Living Relief” measures are also enacted.(ato.gov.au)
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For taxpayers with fluctuating income across financial years, rate changes and thresholds might change your effective rate substantially. Plan for marginal tax impacts when considering investments or freelance work.
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Stay updated on legislative instruments from Treasury and the ATO; definitions or thresholds may be refined.
Next Steps for Individuals
- Review recent changes with your accountant or tax adviser to see if you can adjust withholding or estimated tax payments.
- Monitor your salary progress, deductions, and any change in dependent status all year.
- Use ATO’s online tools to estimate your tax liability under the new brackets.
- For investors, consider when to sell assets or realize capital gains in light of marginal rate shifts.
These tax cuts are designed to help with cost-of-living pressures, especially for low-to-middle income earners. Being proactive and informed means you’ll keep more of what you earn.