There are two sets of tax rates worth understanding right now. The first applies to the 2025–26 financial year, which ended on 30 June — that is the return you are lodging this tax time. The second applies from 1 July 2026, because a legislated tax cut has just kicked in and is already flowing through to pay packets. Here is how both years work, what the cut is actually worth in dollars, and what it means for your planning.
The rates for the return you're lodging now (2025–26)
If you were an Australian resident for tax purposes, these are the brackets the ATO applies to your taxable income for the year ended 30 June 2026. They match the resident tax rates published by the ATO, and they exclude the 2 per cent Medicare levy, which is calculated on top.
| Taxable income | Rate | Tax on this income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | 45% | $51,638 plus 45c for each $1 over $190,000 |
What changes from 1 July 2026
The Government legislated two further rounds of personal income tax cuts in 2025, and no new legislation is needed for them to take effect. Both cuts apply to the same band — income between $18,201 and $45,000. The rate on that band drops from 16 per cent to 15 per cent from 1 July 2026, and again to 14 per cent from 1 July 2027. Every other bracket stays exactly where it is.
| Taxable income | 2025–26 | 2026–27 | 2027–28 |
|---|---|---|---|
| $0 – $18,200 | Nil | Nil | Nil |
| $18,201 – $45,000 | 16% | 15% | 14% |
| $45,001 – $135,000 | 30% | 30% | 30% |
| $135,001 – $190,000 | 37% | 37% | 37% |
| $190,001 and over | 45% | 45% | 45% |
What the cut is worth in dollars
Because the cut only touches the $18,201 – $45,000 band, the saving is capped. One percentage point on a band that is $26,800 wide works out at a maximum of $268 a year. Anyone with taxable income of $45,000 or more gets that full amount in 2026–27 — whether they earn $45,000 or $450,000. People earning between $18,200 and $45,000 get a proportionally smaller saving.
| Taxable income | Annual saving in 2026–27 | Annual saving from 2027–28 |
|---|---|---|
| $25,000 | $68 | $136 |
| $35,000 | $168 | $336 |
| $45,000 | $268 | $536 |
| $70,000 | $268 | $536 |
| $120,000 | $268 | $536 |
| $200,000 | $268 | $536 |
The right-hand column shows the combined saving once the 14 per cent rate applies from 1 July 2027, compared with the 2025–26 rates. Spread across 26 fortnightly pays, the full 2026–27 cut is a little over $10 a fortnight — modest, but automatic.
Don't forget the Medicare levy
On top of income tax, most residents pay the Medicare levy of 2 per cent of taxable income. Low-income earners pay a reduced levy or none at all: for 2025–26, singles pay no levy on taxable income up to $28,011, with the levy phasing in up to $35,013. The thresholds are higher for families (rising with each dependent child) and for seniors and pensioners. These thresholds are usually adjusted each year, so check the current ATO figures for the year you are lodging. Higher earners without private hospital cover may also pay the Medicare levy surcharge, which is a separate calculation again.
A note for non-residents
Foreign residents for tax purposes are taxed on a different scale: there is no tax-free threshold, so tax starts at 30 per cent from the first dollar up to $135,000, then 37 per cent and 45 per cent in the higher bands. Non-residents don't pay the Medicare levy, but they also don't benefit from these rate cuts, which only apply to the resident $18,201 – $45,000 band. If your residency status changed during the year — for example, you arrived in or departed Australia — your return needs particular care, as part-year rules apply.
What it means for your pay and your planning
You don't need to do anything to receive the cut. The ATO updates its PAYG withholding schedules, and employers apply the new tables to pays from 1 July 2026, so most employees will simply see slightly more in their take-home pay. If your payslip looks unchanged a few pay cycles into the new financial year, it is worth asking payroll whether the current tax tables are being used.
For planning, a couple of points are worth noting. Because the cut sits in the lowest taxable band, the marginal rate for most middle and higher earners is unchanged — so strategies like salary sacrificing into super, negative gearing and timing deductions work the same way they did last year. For lower-income earners whose top rate is falling from 16 to 15 to 14 per cent, a deduction claimed in an earlier year is worth marginally more than the same deduction claimed later, which can influence timing decisions at the edges. And if you pay PAYG instalments, keep an eye on whether your instalment amount still reflects your likely tax — instalments can be varied if they are running too high.
How we can help
As registered tax agents, we prepare and lodge your 2025–26 return under the correct rates, make sure every deduction you're entitled to is claimed, and factor the new rates into any tax planning for the year ahead — from instalment variations to super contribution strategies. If you'd like your return handled properly this tax time, or a clear picture of what the cuts mean for your situation, get in touch to book a chat.