2026 Tax Brackets Australia: A Fresh Look at the New Rates and What They Mean for You

Feeling the squeeze from rising prices, housing costs, and everyday expenses? You’re not alone.

The good news is that the Australian Taxation Office (ATO) has introduced updated 2026 tax brackets in Australia, helping more Australian taxpayers keep a little extra in their pocket this financial year.

The Australian Government will implement personal income tax cuts starting from 1 July 2026, as part of new legislation.

These latest income tax cuts and threshold adjustments are designed to ease financial pressure, reward low and middle-income earners, and help offset inflation.

These personal income tax cuts are legislated and will be phased in over two years, with further reductions scheduled for 1 July 2027.

So, whether you’re an employee, employer, or simply looking ahead to your next tax return, here’s everything you need to know about the 2026 tax rates and how they’ll affect your income.

Overview of 2026 Tax Brackets in Australia

Australia uses a progressive, marginal tax system for personal income tax.

This means that only the dollars you earn above each income threshold are taxed at the higher marginal rate, not your entire income. As your income increases, only the portion within each bracket is taxed at that bracket’s marginal rate.

Your effective tax rate is always lower than your top marginal rate because of this progressive system.

From 1 July 2025, the federal government’s latest stage of tax cuts will formally take effect, adjusting the brackets to provide relief across all income levels.

The table below outlines the new tax brackets and marginal tax rates for the 2025–2026 tax year. These tax tables help you determine how much tax you’ll pay based on your income.

The first $18,200 of taxable income is tax-free in Australia, and all Australian taxpayers with a taxable income above $18,200 will benefit from the changes since the lower rate applies to the first portion of their income.

These reforms also help address bracket creep, which occurs when inflation or wage growth pushes income into higher tax brackets, by adjusting thresholds and rates to ensure fairness.

Updated Individual Income Tax Rates for 2025–2026

From 1 July 2026, the tax rate for the $18,201–$45,000 bracket will decrease from 16% to 15%, saving one cent per dollar earned in that bracket.

For middle to high-income earners, the first $45,000 of their income will be taxed at the reduced 15% rate instead of 16%.

The marginal tax rate for this bracket will further decrease to 14% for the 2027–28 income year, with this change scheduled for 1 July 2027.

These new tax cuts will deliver an average tax cut of around $43 per week or more than $2,200 in 2026–27, and the changes will cost $17.1 billion over the forward estimates.

These rates apply for the full year, and the above rates reflect the legislated changes.

These updates replace the 2024–25 thresholds, keeping rates aligned with real-world wage growth and rising living costs.

Note: All calculations above exclude the Medicare levy of 2%, which still applies for most Australian taxpayers.

How the 2026 Tax Brackets Affect Different Income Levels

Let’s look at how the new income tax brackets impact different salary ranges.

Your effective tax rate can be calculated by dividing your total tax payable by your taxable income.

Tax offsets, such as the Low Income Tax Offset and Seniors and Pensioners Tax Offset, can reduce the amount of tax you owe after the brackets are applied.

PAYG withholding ensures the correct amount of tax is deducted from your pay throughout the year.

These changes apply to over 14 million Australian taxpayers, who will retain more of their income.

As you can see, every tier of taxpayers from low-income to middle-income earners will benefit, boosting spending power and overall savings.

Company and Business Tax Rates 2025–2026

If you operate as a company, corporate unit trust, or public trading trust, the company tax rate remains:

• 25% for base rate entities (with aggregated turnover under $50 million)
• 30% for all other companies

This structure helps small and medium businesses reinvest profits, hire staff, and maintain strong growth in an uncertain economy.

The Economic Benefits: How These Tax Cuts Help Australians

The new tax brackets for 2026 aren’t just about saving money on your tax return.

These new tax cuts are modest but meaningful, providing relief to taxpayers as part of a broader personal income tax reform.

They are designed to support cost-of-living pressures and form part of the government’s responsible economic strategy to drive growth and stability by reducing pressure caused by inflation and rising interest rates.

Here’s how:

• Higher disposable income allows households to manage costs for housing, fuel, and groceries more comfortably.
• Low and middle-income earners experience meaningful relief from everyday financial stress.
• Businesses benefit from consumer spending and economic activity fuelled by these tax cuts.

In other words, it’s not just your payslip that improves but also the overall economy gets a boost, too.

How Sole Traders and Small Businesses Benefit

If you’re a sole trader, these updated income tax rates apply directly to your earnings reported in your annual tax return. With a lower tax rate across most brackets, you can expect:

• Greater cash flow to improve operations or upgrade equipment.
• More opportunities to deduct business expenses and invest in growth.
• Better protection against rising costs thanks to real tax savings.

These tax changes apply for the full year, so it’s important to consider how your income and tax planning may be affected over the entire period.

Consulting with a qualified tax professional can help maximise your tax benefits and ensure your tax return is lodged accurately.

Even if your business doesn’t directly pay less tax, increased household disposable income can lead to stronger sales, job creation, and overall economic growth across Australia.

Maximising Your 2026 Tax Return: Smart Strategies for Employees and Employers

Use Salary Sacrificing

Salary packaging allows you to exchange part of your pre-tax salary for benefits like super contributions, health insurance, or a car lease, reducing your taxable income.

Claim Legitimate Deductions

Always keep receipts for work-related expenses, such as tools, uniforms, courses, subscriptions, or home office costs.

These deductions lower your taxable income and boost your tax return.

Track Your Medicare Levy Obligations

Most workers pay a 2% Medicare levy, which is an additional 2% of taxable income for most Australians.

The Government will increase the Medicare levy low-income thresholds from 1 July 2024, benefiting many Australians.

These low income thresholds and income thresholds are higher for families and increase further for each dependent child.

While low-income earners may qualify for partial or full exemption, be sure to check your eligibility when lodging your tax return.

Note that the health care levy of 2% does not factor into the marginal tax rates for the 2026–27 financial year.

Consult Experts Like Pherrus

Navigating multiple tax thresholds, new brackets, and deduction rules isn’t simple.

Our expert team at Pherrus ensures your income tax, FBT, and Medicare levy obligations are correctly calculated, efficiently managed, and strategically optimised for maximum benefit.

How Pherrus Can Help You Save More in 2026

With Australia’s newest tax brackets, rates, and thresholds reshaping how income is taxed in 2026, you need experienced guidance to make the most of your opportunities.

Pherrus provides fully integrated tax planning, accounting, and financial advisory solutions designed to maximise savings and streamline compliance.

Whether you’re updating your tax return, reviewing your business deductions, or simply want to understand how the 2026 tax brackets in Australia affect your pay, our experts are here to help every step of the way.

Contact Pherrus today for strategic tax support that helps individuals and businesses across Australia save time, reduce tax, and build lasting financial success.

FAQs

What are the 2026 Tax Brackets in Australia?

For the 2025–2026 income year, the tax brackets are as follows:

• $0 – $18,200: 0%
• $18,201 – $45,000: 16%
• $45,001 – $135,000: 30%
• $135,001 – $190,000: 37%
• $190,001 and over: 45%
  These rates apply from 1 July 2025, excluding the 2% Medicare levy.

The Australian tax year runs from 1 July to 30 June, and these brackets are used to calculate your taxable income for that period.

Non-residents do not receive the tax-free threshold and pay different tax rates. Working holiday makers also have separate tax rates and brackets, which differ from those for residents.

Who Benefits Most from the 2026 Australian Tax Changes?

Low and middle-income earners benefit the most from these changes, as reductions in the 19% and 32.5% tax rates mean more take-home pay.

Raising the tax thresholds also means middle-income earners can earn more before entering higher brackets.

Working holiday makers should note that their tax rates and brackets are different from those for residents.

How Do I Calculate My 2026 Tax?

To estimate your income tax for 2026, multiply each portion of your taxable income by the rate for its corresponding tax bracket.

You can use the ATO’s official tax calculator, which factors in offsets and the Medicare levy.

The calculator can also help estimate your potential tax refund based on your income, deductions, and other relevant details.

Or, better yet, let Pherrus optimise your return and ensure you claim every allowable deduction.