Tax Planning
Maximising Your Tax Cuts: What Australia’s Upcoming Income Tax Rate Reductions Mean for You
Australia’s federal budget introduces phased reductions to one of the lowest income tax brackets starting mid-2026. Here’s how to plan now to make the most of the changes and avoid common pitfalls.
By NomadicTax Research Team • 5-8 min read • March 4, 2026
## What’s changing
Australia will reduce the personal income tax rate on taxable income between **AUD 18,201 and AUD 45,000** in two stages under the **Treasury Laws Amendment (More Cost of Living Relief) Act 2025**. Starting from **1 July 2026**, the rate drops from 16% to 15%. From **1 July 2027**, it falls further to **14%**. ([au.andersen.com](https://au.andersen.com/april-2025-monthly-tax-update/?utm_source=openai))
Alongside these rate changes, **Medicare levy low-income thresholds** will be increased (adjusted for CPI) for various categories including singles, families, seniors/pensioners, and those eligible for SAPTO. These threshold changes are retroactive to the 2024-25 income year. ([au.andersen.com](https://au.andersen.com/april-2025-monthly-tax-update/?utm_source=openai))
## Who benefits most
- **Low-to-middle income earners** (18,200–45,000) will see the biggest reduction, especially from 1 July 2027.
- If you're near the current threshold or minimum taxable amounts, you benefit from the higher Medicare levy thresholds too.
- For other income brackets, relief is modest, but bracket creep remains a risk unless wider reforms are adopted.
## Tax planning strategies now
- **Review salary packaging or salary sacrificing** arrangements: better knowing whether super contributions will now offer more after these cuts.
- **Prepay allowable expenses** before the new rate takes effect (i.e. before 1 July 2026) to maximize deductions while rates are still higher.
- **Think about income timing**: for small business owners, timing draws, dividends, or distributions could matter if income spans the 2026-27 year.
## Examples
| Key Scenario | Estimate of Federal Tax Savings* |
|--------------|-------------------------------|
| Single person earning AUD 40,000 | reduction from 16% to 15% = **AUD 100/year** from mid-2026; further drop to 14% by mid-2027 brings **AUD 400 total saving/year** |
| Family (two incomes each AUD 35,000) | Similar proportional savings each; combined take-home rises by a few hundred AUD when both incomes fall into the reduced bracket |
| Low income pensioner | With increased Medicare leak thresholds, may also reduce or avoid Medicare levy entirely |
> *Estimated savings before any Medicare levy changes or other offsets.
## What to watch out for
- Rates above AUD 45,000 are unchanged: earning just over that may push you into higher average rates, especially with inflation.
- Thresholds not indexed automatically going forward beyond what’s legislated: risk of bracket creep eroding benefits.
- Ensure your employer’s PAYG withholding reflects these upcoming rate changes so you’re not over-withheld in advance.
## Smart actions to take now
- Update payroll or budgeting systems to reflect new rates from 1 July 2026.
- Seek professional advice if you have multiple incomes, investments, trusts or foreign income.
- Check your eligibility for new Medicare thresholds now so you can plan to minimize liabilities.
These tax changes provide tangible relief, especially if your income falls within the lowest taxable brackets. With a little planning now—particularly around income timing and deductions—you can make the most of what’s coming.