What’s Changing in PAYG Withholding Tax Tables
From 1 July 2026, Australia’s tax withholding schedules will be updated. These updates include:
- New tax rate cuts announced in the 2025–26 Federal Budget, now enshrined in the law via the Treasury Laws Amendment (More Cost of Living Relief) Act 2025, which reduce the bottom marginal tax rate from 16% to 15% effective 1 July 2026. (softwaredevelopers.ato.gov.au)
- Adjustments to thresholds and rate bands for various withholding schedules, including for study and training support loan repayments and other benefits. (softwaredevelopers.ato.gov.au)
Who Needs to Be Ready
If you’re a business paying salaries, a tax practitioner, or handle payroll, you need to:
- Update payroll systems or software to use the new NAT-1004, NAT-3539, and related forms starting 1 July 2026. (softwaredevelopers.ato.gov.au)
- Train payroll staff on new thresholds and rates so that employees aren’t over- or under-withheld. Misapplication can lead to significant compliance risk.
Practical Example
Sarah works full-time with a salary that places part of her income in the bottom tax bracket. Under the old structure she paid 16% tax on each dollar above the tax-free threshold. From 1 July 2026, she will pay only 15% on that band—putting more money in her take-home pay. Employers withholding incorrectly will need to adjust and possibly refund the difference.
Action Steps for Compliance
- Audit your payroll software now—make sure your software vendor has applied the new schedules.
- Review employee agreements with bonuses or varied pay—ensure taxation on variable income aligns with updated thresholds.
- Communicate changes to affected employees—explaining any small shifts in withholding to maintain trust.
- Monitor legislation updates in case implementation delays or corrections occur.
Implementing these changes proactively reduces risks of payroll complaints, underpayments, or overwithholding.