Tax Rate Changes 2025: What Australian Workers Need to Know
The Australian tax landscape is evolving, and if you're an employee or freelancer, it's important to understand how the upcoming changes will affect your take-home pay. While the current financial year (2025-26) maintains the same rates introduced in July 2024, the government has already locked in further tax cuts starting from 1 July 2026. In this guide, we'll break down the old vs new rates, show you exactly what to expect, and help you plan your finances accordingly.
The Current Tax Rates: 2024-25 and 2025-26
Before diving into what's changing, let's establish the baseline. The income tax brackets and rates that applied in 2024-25 remain unchanged for the 2025-26 financial year. This stability gives Australian workers two full years of predictable taxation, which is rare given the frequent adjustments we've seen in recent times.
The current tax scale features five brackets, with a tax-free threshold of $18,200 for Australian residents. The marginal rates increase progressively as your income rises, ensuring that higher earners contribute a larger proportion of their income to tax. Importantly, these figures do not include the 2% Medicare levy, which is calculated separately on your total taxable income.
| Taxable Income | Tax Rate | Tax Payable |
|---|---|---|
| $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's Changing from 1 July 2026
The government has legislated additional personal income tax cuts that will take effect from the 2026-27 financial year. These changes specifically target the lowest tax bracket, providing relief to millions of Australian workers. The marginal tax rate for income between $18,201 and $45,000 will decrease from 16% to 15%, putting extra money directly into the pockets of taxpayers.
For someone earning $45,000 or more, this represents an annual tax saving of $268. While this might seem modest, every dollar counts during times of cost-of-living pressure. The 2026 changes are just the beginning, with a further reduction to 14% scheduled for 2027-28, which would double the annual savings to $536 for the same income level.
Old vs New: Side-by-Side Comparison
To help you visualise exactly how the tax rate changes will impact different income levels, here's a comprehensive comparison table showing the differences between the current rates and what's coming:
| Income Bracket | 2024-25 & 2025-26 | 2026-27 | 2027-28 |
|---|---|---|---|
| $0 – $18,200 | 0% | 0% | 0% |
| $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% |
Real-World Savings Examples
Let's look at how these changes translate into actual dollar savings for Australian workers at different income levels. These examples assume no other deductions or offsets and exclude the Medicare levy for clarity:
Example 1: Income of $35,000
Under the current 16% rate, tax on the $16,800 above the threshold is $2,688. From July 2026, at 15%, this drops to $2,520—a saving of $168 per year. By 2027-28 at 14%, the tax falls to $2,352, saving $336 annually compared to today.
Example 2: Income of $80,000
A worker earning $80,000 currently pays $14,688 in income tax (excluding Medicare). From July 2026, this reduces to $14,420, saving $268. By 2027-28, the tax bill drops to $14,152, delivering a $536 annual saving.
Example 3: Income of $140,000
Higher earners also benefit because everyone pays tax on that first bracket. Someone earning $140,000 will save the same $268 from July 2026 and $536 from July 2027 as lower-income workers, because the rate reduction applies to the same income slice for everyone.
Understanding Bracket Creep and Why These Changes Matter
One of the main reasons the government is implementing these tax cuts is to combat "bracket creep." This occurs when inflation pushes wages higher, moving taxpayers into higher tax brackets even though their purchasing power hasn't actually increased. Without regular adjustments to tax thresholds and rates, workers end up paying a higher proportion of their income in tax over time, simply due to inflation.
The 2026 and 2027 rate reductions are designed to provide cost-of-living relief while addressing this bracket creep issue. By lowering the rate on the $18,201 to $45,000 bracket, the government ensures that more Australians keep a larger share of their hard-earned income. This is particularly beneficial for part-time workers, those entering the workforce, and anyone whose income sits within or just above this bracket.
Other Tax Considerations for 2025-26
While income tax rates are holding steady this financial year, there are other important tax-related changes to be aware of. The Superannuation Guarantee rate has increased from 11.5% to 12%, meaning more money is going into your retirement savings with each payslip. This increase affects your take-home pay calculations, as the additional super contribution comes from your employer, not your gross salary.
For those with HECS-HELP debts, repayment thresholds and rates remain an important consideration. The Medicare levy low-income thresholds have also been increased, providing additional relief for lower-income earners. If you're considering salary sacrifice arrangements, now is an excellent time to review your strategy, especially with the concessional super contribution cap remaining at $30,000 for 2025-26.
Do You Need to Do Anything?
The good news is that these tax rate changes will be applied automatically by the Australian Taxation Office (ATO) when you lodge your tax return. There's no need to fill out special forms or apply for the new rates—they're built into the tax system and will be calculated by your employer's payroll software or the ATO's systems.
However, being informed about these changes allows you to plan ahead. You might adjust your budget expectations for the 2026-27 and 2027-28 financial years, knowing you'll have a little extra in your pocket. For those making voluntary superannuation contributions, the tax savings could be redirected to boost your retirement savings even further.
Conclusion: Planning for the Future
The tax rate changes coming in 2026 and 2027 represent modest but meaningful relief for Australian workers. While the 2025-26 financial year maintains the current tax structure, understanding what's ahead helps you make informed financial decisions. Whether you're budgeting for the year, planning major purchases, or simply wanting to know how much income tax you'll pay, these changes mean more money staying in your pocket.
Remember that tax rates are just one part of your overall financial picture. Consider how these changes interact with your superannuation contributions, HECS-HELP repayments, and any salary sacrifice arrangements you may have. For the most accurate picture of your individual tax situation, use our calculators to estimate your take-home pay under both current and future tax rates.