What’s Changing with Personal Income Tax From July 2026 and Beyond
- As part of the 2025-26 Federal Budget, the bottom marginal rate of 16% will drop to 15% from 1 July 2026, then further to 14% from 1 July 2027 for taxable incomes between the tax-free threshold and $45,000. (ato.gov.au)
- These changes restore bracket creep relief, ensuring that inflation-driven income growth doesn’t push people into higher tax burdens unfairly. (ministers.treasury.gov.au)
Tax Planning Strategies to Make the Cuts Count
1. Anticipate Income Timing
- If possible, schedule bonus payments, contract income, or capital gains so that income falls during a lower-rate year. For example, delaying a major payment until after July 2026 could secure the 15% rate.
- On the flip side, in 2027-28 and beyond, the rate drops further; if there’s flexibility, shifting income to later years might be beneficial.
2. Maximise Deductions and Offsets in High-Income Years
- Use years before 1 July 2026 to claim work-related expenses, investment losses, or deductible charitable contributions. That lowers income taxed at higher rates that won’t exist or will be reduced post-cuts.
- If you have a marginal tax rate between 32.5–45%, shifting deductions to those years could yield greater tax break.
3. Leverage Non-Salary Income Structures
- For business owners or sole traders, consider how income is split or distributed, whether via trusts or partnerships. This can expose portions of income to the softer 14-15% tiers.
- Ensure trusts use streaming to allocate income to beneficiaries in lower tax brackets.
Examples
| Scenario | Before Cuts | After Cuts (July 2026) | After Cuts (July 2027) |
|---|---|---|---|
| $40,000 salary | taxed at 16% rate | taxed at 15% | taxed at 14% |
| $80,000 salary | portions between tiers 2-4 taxed at 30-45% unchanged in bottom tier | same bottom portion saves 1% | saves 2% |
Actionable Steps for Individuals
- Run projections of your income over 2025-26 to 2027-28, factoring in deductions and timing of realisations of investment gains.
- If approaching the $45,000 threshold, explore prepaying certain expenses or deferring income to stay in lower margins.
- Talk to your payroll provider if minor income adjustments are possible (e.g. splitting payments across financial years).
- Ensure investment income and trust distributions flow to lower rate entities or individuals, where available.
Bottom line: The upcoming tax cuts are a once-in-decade opportunity to lower your tax load, especially for low-to-middle-income earners. With careful timing and structuring, you can keep more of what you earn.