Personal income tax cuts from 1 July 2026: What it means for you
April 11, 2025The 2025–26 Federal Budget has confirmed a two-stage reduction in personal income tax rates, set to commence from 1 July 2026. This change aims to provide modest relief to low- and middle-income earners, with the most significant benefits for those earning up to $45,000.
Key Changes to Tax Rates
From 1 July 2026, the tax rate for the $18,201–$45,000 income bracket will decrease from 16% to 15%. A further reduction to 14% is scheduled for 1 July 2027. The tax rates for other income brackets remain unchanged.
| Taxable Income | Current Rate | Rate from 1 July 2026 | Rate from 1 July 2027 |
|---|---|---|---|
| $0 – $18,200 | Tax-free | Tax-free | Tax-free |
| $18,201 – $45,000 | 16% | 15% | 14% |
| $45,001 – $135,000 | 30% | 30% | 30% |
| $135,001 – $190,000 | 37% | 37% | 37% |
| $190,001 and above | 45% | 45% | 45% |
Projected Tax Savings
The anticipated tax savings for individuals are as follows:
| Financial Year | Maximum Tax Saving |
|---|---|
| 2026–27 | $268 |
| 2027–28 | $536 |
These savings are modest and primarily benefit those within the $18,201–$45,000 income bracket.
Medicare Levy Threshold Adjustments
Effective from 1 July 2024, the Medicare levy low-income thresholds have been increased, providing additional relief for low-income earners. This change will first apply to tax returns for the 2024–25 financial year.
| Category | 2024–25 Threshold | 2025–26 Threshold |
|---|---|---|
| Singles | $26,000 | $27,222 |
| Families | $43,846 | $45,907 |
| Single seniors & pensioners | $41,089 | $43,020 |
| Family seniors & pensioners | $57,198 | $59,886 |
| Additional child or student | +$4,216 | +$4,027 |
These adjustments aim to reduce the tax burden on low-income individuals and families.
Implications for Taxpayers
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Low- and Middle-Income Earners: Will experience modest tax relief, with the most benefit for those earning up to $45,000.
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High-Income Earners: No change in tax rates; however, they may be affected by bracket creep over time.indigofinancial.com.au
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Low-Income Earners: The increased Medicare levy thresholds may exempt more individuals from paying the levy.
Looking Ahead
While these tax cuts are legislated, their implementation may be influenced by future political and economic developments. Taxpayers should stay informed and consider consulting with financial advisors to understand how these changes may affect their individual circumstances.
Need Assistance?
At Indigo Financial, we are committed to helping you navigate these changes and optimize your financial outcomes. Contact us today on (08) 8212 8585 to discuss how the upcoming tax reforms may impact you and explore strategies to manage your tax obligations effectively.
This article is intended for informational purposes only and does not constitute financial or tax advice. For personalized advice, please consult with a qualified professional.
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