What’s Changing
Starting from the 2026-27 income year, the personal income tax rate in Australia will drop for the lowest taxable income bracket: the 16% rate (for ordinary residents earning between $18,200 and $45,000) will reduce to 15%. Then from the 2027-28 income year, that same bracket rate will drop further to 14%. (ato.gov.au)
Additionally, the Medicare levy low-income thresholds (for individuals, families, and those eligible under SAPTO) will increase in line with CPI. (ato.gov.au)
Why It Matters
These changes are meant to:
- Provide relief from bracket creep, so your tax rate doesn’t unintentionally increase due to inflation.
- Help lower-income earners by making both taxes and levies more proportionate.
- Support cost-of-living by leaving more in your pay packet each week or fortnight. (ato.gov.au)
Actionable Insights & Examples
Here’s how taxpayers and their advisors should prepare:
| Who | What to Do | Key Dates |
|---|---|---|
| Individuals earning between $18,200 and $45,000 | Estimate your 2026-27 income to see savings. If you're earning near $45,000, get clarity from your payroll about withholding adjustments. | Changes take effect 1 July 2026 for 15%, then 1 July 2027 for 14% rate. (ato.gov.au) |
| Payroll providers / employers | Update PAYG withholding tables to reflect rate changes and Medicare levy threshold increases so withholdings aren’t too high or too low. | Start adjusting from tax installations or payroll cycles covering mid-2026. |
| Low income or senior/pensioner taxpayers | Review eligibility for Medicare levy exemptions or reductions under new thresholds. Some may now fall below thresholds and avoid levies entirely. |
Example: Sarah, an employee earning $40,000
- Under current rules (2025-26): Sarah pays 16% on income over $18,200 up to ~$45,000.
- From 1 July 2026: That rate goes to 15%, saving approximately $208 annually on the taxable portion between thresholds.
- From 1 July 2027: Further cut to 14%, adding another ~ $204.
- Additional savings may come by being exempt or reduced under the updated Medicare low-income thresholds.
Caveats & Watch Outs
- These tax cuts are already law, passed under the Treasury Laws Amendment (More Cost of Living Relief) Act 2025. (ato.gov.au)
- Non-resident taxpayers and working holiday makers are not affected by the rate change in the bottom resident tax bracket. (ato.gov.au)
- Payroll systems and withholding amounts may lag. If you're having too much withheld, you can vary your withholding or estimate tax with a registered tax agent.
Tips for Advisors & Financial Planners
- Use these new rates in cash-flow projections and retirement planning models.
- Advise clients who have multiple income streams (e.g. investments and labour) to watch how income aggregation may push them into higher brackets.
- Review superannuation strategies: tax savings from labour income might shift the balance of advantage toward salary sacrifice contributions (depending on income).
By planning ahead, individual taxpayers and professionals can benefit fully from these upcoming changes rather than being caught by surprises come annual tax assessments.