Tax Planning
Tax Planning Tips for Individuals Ahead of the new 2026-27 Marginal Tax Cuts
Australia’s budget has introduced phased tax rate reductions from mid-2026; individuals can plan now to capture savings, adjust withholding, and anticipate changes affecting low income earners and student loan repayments.
By NomadicTax Research Team • 5-8 min read • February 20, 2026
## Overview of the Personal Income Tax Cuts
As part of the 2025–26 Federal Budget, the Australian government legislated tax cuts effective from:
- **1 July 2026**: reducing the 16% tax rate on taxable incomes between **AU$18,201** and **AU$45,000** to **15%**, and
- **1 July 2027**: further lowering that rate to **14%.** ([taxnews.ey.com](https://taxnews.ey.com/news/2025-0763-australias-2025-26-federal-budget?utm_source=openai))
These cuts follow earlier measures that took effect from 1 July 2024. Additionally, the **Medicare levy low-income thresholds** were increased and some changes took effect retroactively for the 2024-25 income year. ([au.andersen.com](https://au.andersen.com/april-2025-monthly-tax-update/?utm_source=openai))
## Planning Strategies to Maximise Benefits
Here are practical steps you can take well in advance of the changes:
- **Review your projected taxable income**: If you expect your income to fall around AU$18,200–AU$45,000, the cuts will directly impact your tax-liability. Planner accordingly with bonuses, overtime or other income sources.
- **Adjust PAYG withholding early**: If you're salaried, by 1 July 2026 your marginal rate will drop, reducing your tax obligations. To avoid overpayments, consider requesting a revised withholding rate from your employer or reviewing your activity-reporting arrangements. However, do verify when legislative changes are reflected in ATO tools.
- **Prepay deductible expenses**: If you itemise deductions—though many will use standard offsets—consider whether any allowable prepaid deductions (like subscription renewals, work-related expenses) can be made before 30 June 2026 to capture them under current rates, particularly if you’re close to threshold cutoffs.
- **Phase timing of capital gains and losses**: If planning asset disposals, consider timing sales so gains fall into lower brackets post-July 2026, or realise losses when they offset higher taxed income now.
## Impacts Beyond Just Rates
- **HELP / student loan repayments**: The repayment threshold has been increased from **AU$54,435** to **AU$67,000** from **1 July 2025**, easing repayment burden sooner for many. ([au.andersen.com](https://au.andersen.com/federal-budget-report-2025/?utm_source=openai))
- **Low-income earners and Medicare levy**: With higher thresholds, some individuals who previously paid the Medicare levy will be exempt or pay less from 1 July 2025. That increases after-tax take-home pay. ([au.andersen.com](https://au.andersen.com/april-2025-monthly-tax-update/?utm_source=openai))
## Example Scenarios
- If your taxable income is **AU$40,000** in 2026-27, your rate on income between **AU$18,201-AU$45,000** will drop from 16% to 15%, saving **AU$100**+ annually, plus adjustments from Medicare levy changes.
- For someone earning **AU$55,000**, the cut applies only to part of your income. You’ll benefit for the portion between AU$18,201-AU$45,000; higher rates for income above remain unchanged.
## Risks and Watchpoints
- **Offset phase-outs and thresholds**: These may change. Don't assume all offsets remain static.
- **State taxes are unaffected**: These are federal changes; state levies and fees still apply separately.
- **Legislative and tool lag**: Ensure ATO calculators, tax software and employer withholding tables are updated properly. Be cautious relying on early estimates before official confirmation.
## Action Checklist for Individuals
1. Request updated PAYG rates from your payroll or employer if applicable.
2. Gather and retain documentation for deductible expenses prior to end of financial year.
3. Estimate student loan repayment obligations under the new threshold.
4. Track your working hours and income projections—especially if you're near income thresholds.
5. Consult a tax advisor if you have complex income (investment, superannuation, foreign income) to project your total tax outcome under new rates.
By proactively planning, many individuals can increase after-tax income by positioning income, timing deductions, and updating withholding accurately. The forthcoming tax rate cuts represent an opportunity—don’t leave savings on the table.