What’s Changing: Income Tax Cuts from 1 July 2026
- The 16% tax bracket will drop to 15% on 1 July 2026.
- Further reduction to 14% for that bracket is scheduled for 1 July 2027.
- These cuts are part of the Cost of Living Tax Cuts Act, aimed at returning bracket creep and providing relief across all income groups. This law is now enacted. (ato.gov.au).
Who Benefits Most & What it Means for Taxpayers
| Income Level | Estimated Reduction in Tax Paid* |
|---|---|
| Low-middle income ($50,000–$70,000) | Modest savings in upcoming financial years |
| Middle income ($70,000–$120,000) | More meaningful relief, improving take-home pay |
| High incomes (where bracket creep hits) | Some benefit but limited relative to higher rate brackets |
*These savings assume full exposure to the affected bracket and no offsetting changes.
Planning Strategies to Maximise the Benefit
- Accelerate deductions into financial years where you expect to be in the affected bracket.
- Defer income (if possible) into years when your marginal rate will be lower under the new thresholds.
- Prepay expenses such as insurance, subscriptions, or professional costs before 30 June to get deductions sooner.
- Review superannuation contributions – making concessional contributions now may offer greater marginal benefit before cuts fully take effect.
Example: Sarah’s Salary Shift
Sarah currently earns $80,000 and is on the 16% marginal rate for a portion of her income:
- Under current rules, she pays 16% on portion above threshold.
- When reduction to 15% comes, she saves 1% * on that portion (~$150-$200 per year).
- When cut to 14% in 2027, savings double for that bracket portion.
If Sarah also brings forward deductible expenses into FY2025-26, she could further reduce her effective taxable base while benefiting from pre-cut-rate conditions.
Things to Watch Out For
- Medicare levy thresholds and phase-outs for offsets may not move in line, potentially reducing net benefit.
- Future budgets or policy changes could further adjust rate bands or offset eligibility.
- For investors, capital gains discount and tax on trust distributions/ dividends will still depend heavily on your overall tax bracket — rate cuts may shift effective rates there as well.
Bottom line: These legislated rate cuts are material. With proactive planning — bringing forward deductions, adjusting income timing, and reviewing investment and contribution strategies — many taxpayers can meaningfully increase their after-tax income in coming years.