Tax Planning
Smart Tax Planning for Low-to-Middle Income Earners Amid Australia’s Upcoming Bracket Adjustments
With the 2025-26 Budget introducing phased personal income tax rate cuts beginning 1 July 2026, low- and middle-income earners can strategise now to maximise benefits.
By NomadicTax Research Team • 5-8 min read • March 13, 2026
## Understanding the Changes
Australia’s Federal Budget 2025-26 includes **law-passed** tax cuts that will:
- From **1 July 2026**, reduce the tax rate on income between AU$18,201 and AU$45,000 from **16% to 15%**. ([ashurst.com](https://www.ashurst.com/en/insights/australia-federal-budget-2025-2026-key-tax-measures/?utm_source=openai))
- From **1 July 2027**, further lower that rate to **14%**. ([ashurst.com](https://www.ashurst.com/en/insights/australia-federal-budget-2025-2026-key-tax-measures/?utm_source=openai))
Also, the Medicare levy low-income thresholds have been increased, maintaining relief for low earners. ([ashurst.com](https://www.ashurst.com/en/insights/australia-federal-budget-2025-2026-key-tax-measures/?utm_source=openai))
These changes are part of the **Treasury Laws Amendment (More Cost of Living Relief) Act 2025**, which has already received Royal Assent. ([au.andersen.com](https://au.andersen.com/april-2025-monthly-tax-update/?utm_source=openai))
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## Tax Planning Opportunities
Here are actionable insights for taxpayers to optimise under the new regime:
### 1. **Bracketing and Income Splitting**
- If you're near the upper boundary of AU$45,000, consider **deferring income** (bonuses, consultancies) to after 1 July 2026 to benefit from the rate drop.
- Couples with shared work or investments might explore how income splitting (if permissible under law) or Centrelink assessments are affected.
### 2. **Prepaying Deductible Expenses**
- For those with business or investment expenses, paying (or prepaying) legitimate deductible expenses before 30 June 2026 may retain those at current rates. But ensure that these are deductible under current law—not speculative “benefit harvesting.”
### 3. **Superannuation Contributions**
- Making concessional (pre-tax) super contributions continues to be tax-efficient. Since these are taxed at the superannuation contribution rate (15%), which may be lower than your marginal rate post-cuts depending on income, explore utilising catch-up or “bring-forward” contributions if eligible.
### 4. **Capital Gains Timing**
- The rate cuts do **not** directly impact capital gains tax (CGT) rules, but the **foreign resident CGT withholding regime** and main residence exemption restrictions are areas requiring proactive planning—especially for property owners or foreign-resident individuals. ([ato.gov.au](https://www.ato.gov.au/forms-and-instructions/rental-properties-2025/whats-new-in-the-rental-properties-guide?utm_source=openai))
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## Key Examples
| Situation | Strategy | Why It Helps |
|-----------|----------|--------------|
| Freelancer earning AU$50,000 including seasonal work in June | Defer project invoices until July 2026 | Push income into lower 15% or 14% bracket |
| Part-time worker with small investment property | Adjust deductions and depreciation timing | Helps offset more income when rates are higher |
| Temporary resident returning to Australia | Track period of residency for CGT discount eligibility | Foreign resident rules reduce or deny discount |
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## Risks & Compliance Alert
- Do **not assume** deductions or arrangements that may trigger **ATO scrutiny**, especially in **misreporting residency** or claiming the main residence exemption when not eligible.
- Be aware that withholding rules (e.g., Foreign Resident Capital Gains Withholding—FRCGW) can trigger obligations for sale of real property if a clearance certificate is missing. ([ato.gov.au](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/foreign-resident-capital-gains-withholding/australian-residents-and-clearance-certificates?utm_source=openai))
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## Action Plan
1. Review your income streams to identify any that can be shifted into future financial years.
2. Speak to a tax professional about structuring deductions and super contributions efficiently under the new thresholds.
3. For foreign or temporary residents owning property, check whether property disposals fall under FRCGW and whether main residence exemption or CGT discount applies.
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**Summary**: These incremental rate reductions provide real relief for low- to middle-income earners. Planning ahead—timing income, expenses, and investment decisions—can maximise your benefit. But the key is staying compliant and informed.