What Are the New Tax Cuts?
From 1 July 2026, the tax rate for the lowest taxable bracket will drop from 16% to 15%, under Schedule 1 of the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024.(ato.gov.au) Then, on 1 July 2027, it will reduce further to 14% for that same bracket.(ato.gov.au) These cuts form part of the Government’s effort to address bracket creep and cost-of-living pressures.(ato.gov.au)
Who Benefits
- Residents earning up to $45,000: effectively pay less tax on marginal income in the lowest taxable band.
- Middle-income earners may also notice some catch-ups if they were pushed into higher brackets by inflation.
- Tax agents and payroll departments will need to update withholding tools and software.
What Taxpayers Should Do Before the Cuts
- Estimate your withholding: adjustments may lead to increases in take-home pay—check with your employer or payroll advisor.
- Review your deductions: since your marginal rate changes, the after-tax benefit of deductions may differ.
- Update PAYG instalments if you rely on them—less tax pressure as rates drop.
- Be aware of timing: for expenses and income recognition if you’re close to the July 2026 transition. Could be worth shifting income or accelerating deductions accordingly.
Example Cases
| Taxable Income | Before 1 July 2026 (16%) | After 1 July 2026 (15%) | After 1 July 2027 (14%) |
|---|---|---|---|
| $40,000 | $6,400 | $6,000 | $5,600 |
| $45,000 | $7,200 | $6,750 | $6,300 |
Imagine someone making $42,000 annually. From July 2026, they’ll pay $420 less, and $840 less by July 2027, just via this bottom rate change. If deductions or offsets are involved, changes scale differently.
Maintaining Compliance During Transition
- Update payroll systems and inform relevant stakeholders ahead of 1 July changes.
- Ensure tax software used by individuals or businesses reflects updated brackets.
- Check notices of assessment—ATO might adjust automatically, but verify especially if income fluctuates.
Takeaway: These tax cuts provide real relief, especially for low- and modest-income earners. It’s essential to plan now, review your finances, and ensure systems are updated to reflect new rates starting mid-2026. With thoughtful prep, you’ll be ready when the changes take effect.