Tax Planning
Navigating Australia’s Upcoming Resident Tax Rate Cuts: Planning Ahead for 2026–27
With Australia’s new income tax cuts legislated to take effect from 1 July 2026 and further cuts in July 2027, taxpayers and advisors need to get ready to adjust withholding, investment strategy, and year-end planning.
By NomadicTax Research Team • 5-8 min read • March 20, 2026
## What’s Changing?
Starting **1 July 2026**, Australia will reduce the resident individual tax rate on income exceeding the tax-free threshold up to $45,000 from **16% to 15%**. Then, from **1 July 2027**, that same bracket drops further to **14%**. These changes are part of the Treasury Laws Amendment (More Cost of Living Relief) Act 2025, now law.([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))
## Who’s Affected?
- **Employees** who have income in the lowest bracket—this delivers more take-home pay.
- **Investors**, as changes may affect gross yield calculations after personal tax.
- **Self-employed individuals** or sole traders who estimate income and pay PAYG instalments.
## Key Planning Strategies
**Update payroll settings & pay-as-you-go (PAYG) instalments**:
- Businesses should adjust withholding schedules for employees from 1 July 2026 to reflect the new 15% rate.
- Sole traders and other payees should revisit their PAYG instalment rates to avoid overpaying or underpaying obligations.
**Revisit investments and cash flows**:
- Lower tax on first bracket income may improve cash flow — reinvest or reduce high-interest debts.
- Investment vehicles with distributions in this bracket gain more after-tax return.
**Tax-deductible items & timing**:
- Bring forward deductible expenses into earlier income years if possible, especially for those crossing into or already within higher tax brackets.
- Defer income into later years if likely to be taxed at a rate that will drop under the new thresholds.
## Example Scenarios
- **An employee earning $40,000** currently pays 16% on income after threshold. From 1 July 2026, that tax drops to **15%**, saving about **$100 per year**—negligible for high earners but meaningful for low to middle incomes.
- **Business owner estimating PAYG instalments**: adjusting instalments to match lowered bracket can free up cash during 2026-27 for investment or debt repayment.
## Action Items Before 1 July 2026
- Update all payroll systems and communications to employees about new rates.
- Tax agents/advisers should check client AGI (adjusted gross income) slips to project the impact of rate shift.
- Review TAP (taxation accounting periods) or financial year income expectations around this bracket.
Embracing these changes early ensures smoother cash flow and avoids surprises at tax time. If you have complex affairs, speak with a tax professional to tailor planning to your situation.