What Has Changed in Budget 2025-26?
As part of the Treasury Laws Amendment (More Cost of Living Relief) Act 2025, the Government introduced new income tax cuts to provide cost-of-living relief and address bracket creep. Key changes: from 1 July 2026 the 16% personal income tax rate drops to 15%, and from 1 July 2027, that rate drops again to 14%. (ato.gov.au)
Additionally, the Medicare levy low-income thresholds for individuals, families, and those eligible for the Australian Senior and Pensioner Tax Offset are being increased in line with CPI, effective for the 2024-25 income year and later. (ato.gov.au)
What Individuals Should Do to Capture Benefits
- Review your PAYG withholding: If you're an employee, your employer should begin updating tax tables. You may need to monitor whether you're having too much tax withheld currently.
- Assess your overall tax bracket exposure: Understanding where the brackets lie post-1 July will help you forecast tax liabilities and marginal tax rates for salary, investment income, capital gains.
- Plan for Medicare levy implications: With higher thresholds, lower-income earners may be exempt or pay less levy. Check eligibility thresholds relative to your income and family status.
- Review deductions, offsets, and super contributions: If you anticipate higher income in 2026-27, maximise concessional super contributions before the year ends, but remain within caps to avoid excess contributions tax.
Example Scenarios
- Sarah, a single salaried worker earning $60,000, will see her marginal relief when the 16% rate drops to 15%, increasing her take-home pay modestly. She should also check whether changes to Medicare levy thresholds reduce her levy liability.
- The Smith household, earning combined income of $80,000 with two dependent children, should assess where their family income threshold for Medicare levy sits—moving thresholds can reduce levy arrears and increase disposable income.
Risks and Things to Watch
- Budget measures not yet law: while most changes are enacted (including tax cuts and Medicare threshold increases), some measures announced in Federal Budget 2026 require legislation and may still be modified. (community.ato.gov.au)
- Impact on investment or property sales: Proposed Budget changes for new builds’ capital gains could affect eligibility for CGT discount or inflation-indexation depending on dates of acquisition or “build handover” relative to Budget night. If selling property, timing is critical. (community.ato.gov.au)
- Super contribution caps: Ensure you don’t exceed concessional contributions with employer + personal contributions, especially as super law changes (e.g. weekly payments) may shift timing dynamics.
Actionable Planning Checklist for Individuals
- Estimate your income for 2026-27, including investments and possible capital gains
- Adjust your withholding if currently over-paid under old brackets
- Check whether medical levy thresholds will shift your liability
- Use concessional super contributions if nearing caps, especially before 30 June
- Consult with a tax advisor if you’re anticipating significant changes (property sale, income spike etc.) to time events optimally.
With these changes effective from 1 July 2026, planning now ensures you don’t leave money on the table and helps align cash flow with new personal tax settings.
Author: NomadicTax Research Team