Gain Clarity on the 2026-27 Updates
As of 1 July 2026, Australia’s PAYG withholding tax tables will be revised to incorporate changes from the Treasury Laws Amendment (More Cost of Living Relief) Act 2025. The updates include:
- Personal income tax rate cuts, including reduction of certain rates (e.g., 16% to 15% and further cuts over time). (softwaredevelopers.ato.gov.au)
- Indexed thresholds for Study and Training Support Loans (STSL) and other repayment schedules. (softwaredevelopers.ato.gov.au)
- Updated superannuation benefit payment caps: lump sum payments, termination payments, and income streams. (softwaredevelopers.ato.gov.au)
How These Changes Affect Employees and Employers
- Take-home pay may increase: Lower withholding means more net income each pay cycle, especially for middle and higher earners. Plan cash flow accordingly.
- Payroll systems must be updated: Employers—with payroll software or external DSPs—must ensure the correct withholding schedules are active from 1 July. Incorrect tax codes or rates could lead to under-withholding.
- Review allowances and deductions: Since brackets shift, deductions and tax offsets may be less effective for some tax brackets. Review and adjust salary packaging or pre-tax super contributions accordingly.
Tax Planning Opportunities
1. Timing income—if possible
If you control when income is received (e.g., contractors, bonus payments), accelerating or delaying receipt around 1 July 2026 may provide tax benefit depending on your marginal rate pre- and post- cut.
2. Reevaluate salary sacrifice arrangements
Pre-tax contributions to super or novated leasing could be more attractive with higher net pay. Ensure you account for both the rate cuts and the concessional cap to avoid surprises.
3. Use catch-up concessional super contributions
If you have unused concessional contribution space from prior years, consider using it to reduce taxable income—especially in the new rate environment. Be mindful of being under the cap.
Practical Example
A full-time employee earning $100,000 per annum:
- Under old PAYG withholding rates, they might have been taxed at higher marginal rates sooner.
- From 1 July 2026, their marginal tax rate for portions of their income will fall, meaning each pay period has less withheld—more cash in hand.
- Using that cash to max out concessional super contributions or pay down high-interest debt could amplify savings.
Recommendations
- Talk with your payroll team or software provider to confirm changes are implemented by 1 July 2026.
- Review your personal or business budget, to reflect possible increases in after-tax income.
- Check your eligibility for deductions, offsets, and concessional caps in light of new brackets.
These changes are not just administrative—they have real cash-flow and financial planning implications starting from commencement of the new financial year.