Millions of Australian workers began paying a lower rate of tax on part of their income on 1 July 2026. The 16% rate on taxable income between $18,201 and $45,000 is now 15%, and it is legislated to fall again, to 14%, from 1 July 2027.

The cut is modest in dollar terms, but it reaches almost everyone who earns more than the tax-free threshold. With 2025–26 returns still being lodged at the old rate, it is worth understanding which year each rate applies to.

From 16% to 15%: what changed on 1 July

According to the ATO's published resident tax rates, the 2026–27 scale, excluding the 2% Medicare levy, is:

  • $0 to $18,200: nil
  • $18,201 to $45,000: 15c for each $1 over $18,200
  • $45,001 to $135,000: $4,020 plus 30c for each $1 over $45,000
  • $135,001 to $190,000: $31,020 plus 37c for each $1 over $135,000
  • $190,001 and over: $51,370 plus 45c for each $1 over $190,000

The thresholds are unchanged from 2025–26. Only the rate on the second bracket has moved, from 16% to 15%, and the fixed dollar amounts in the higher brackets have fallen to match. In 2025–26 those base amounts were $4,288, $31,288 and $51,638.

The 30%, 37% and 45% rates are untouched. The saving for higher earners comes entirely from paying less on the slice of income between $18,201 and $45,000.

The law behind the cut, and the second step to 14%

The reductions were legislated in the Treasury Laws Amendment (More Cost of Living Relief) Act 2025, which passed Parliament in March 2025. The ATO's summary of the measure states: "This measure is now law."

That makes the 14% rate from 1 July 2027 enacted law rather than a proposal or election promise. It would take new legislation to change it.

The ATO has not yet published a full rate table for 2027–28. Assuming the thresholds stay where they are, the 14% rate would apply to the same $18,201 to $45,000 band.

What each percentage point is worth: hypothetical examples

Because the rate change applies only to a $26,800 band of income, each one-point cut is worth at most $268 a year (1% of $26,800). Anyone earning above $45,000 receives that full amount. People earning less receive a smaller amount, proportionate to how much of their income falls into the band.

The hypothetical examples below use the ATO's rate scales and ignore the Medicare levy and tax offsets, such as the low income tax offset, which may reduce tax further for some people.

A worker on a taxable income of $60,000:

  • 2025–26 (16%): $4,288 plus 30% of $15,000 ($4,500) = $8,788
  • 2026–27 (15%): $4,020 plus $4,500 = $8,520, a saving of $268
  • 2027–28 (14%, if thresholds are unchanged): 14% of $26,800 ($3,752) plus $4,500 = $8,252, a further $268

Over the two steps, that worker's income tax falls by $536 a year compared with 2025–26.

A part-time worker on $30,000:

  • 2025–26: 16% of $11,800 = $1,888
  • 2026–27: 15% of $11,800 = $1,770, a saving of $118
  • 2027–28: 14% of $11,800 = $1,652, a further $118

At the top end, someone earning $250,000 gets the same $268 per step as the $60,000 earner, because the cut applies only to the lower band.

Measured against the size of each tax bill, however, the picture flips. The $30,000 earner's $118 saving in 2026–27 is about 6.3% of their 2025–26 income tax, before offsets. For the $60,000 earner, $268 is about 3% of their bill.

For the $250,000 earner, whose 2025–26 tax on the ATO scale is $78,638 ($51,638 plus 45% of $60,000), the same $268 is less than half of one per cent. In proportional terms, the cut is weighted towards lower and middle incomes, even though higher earners receive the same maximum dollar amount.

Why it may not feel like much in your pay

For most employees, the lower rate is not a lump sum. Because it applies from 1 July 2026, the benefit is generally spread through the year via pay-as-you-go withholding and then reconciled when the 2026–27 return is lodged.

Spread over 52 weeks, $268 a year is a little over $5 a week. Employees who want to check can compare the tax withheld on a recent payslip with one from before July, although pay rises and other changes can blur the comparison. For many workers, that can be absorbed by rising prices or by bracket creep: as wages grow, more income is taxed at higher marginal rates.

The Parliamentary Budget Office has flagged that pressure. In its 2026–27 Medium-Term Budget Outlook, it projected average tax rates would reach "a historical high of 28.6% by 2036-37, mostly driven by bracket creep". Under that projection, part of the value of fixed-dollar rate cuts may erode over time.

Don't confuse this year's return with next year's rate

Tax Time 2026 relates to the 2025–26 income year, which ended on 30 June 2026. Returns being lodged now are still assessed at 16% on the $18,201 to $45,000 band.

The 15% rate will first show up in a tax return when 2026–27 returns are lodged from July 2027. That is also the first year the new $1,000 standard deduction for work-related expenses can be claimed. The 14% rate will apply to the 2027–28 income year. That same year also brings the new Working Australians Tax Offset of up to $250, which is non-refundable.

Treasury has described a combined benefit of up to $2,816 a year for an average earner, compared with 2023–24 settings. That figure bundles five measures, including the earlier Stage 3 changes, and is not what every taxpayer will receive.

What to watch before July 2027

The next milestone is 1 July 2027, when the 14% rate takes effect. Watch for the ATO to publish its 2027–28 rate table and updated withholding schedules closer to that date.

Beyond that, the bracket thresholds themselves are not indexed. Opposition Leader Angus Taylor has proposed indexing them to inflation, starting with the two lowest brackets from 2028–29. That remains an opposition policy, not a bill, and its costings are the Coalition's own.

Anyone whose income sits near a threshold, or who has several income sources, may find the real effect of these cuts varies with individual circumstances. A registered tax agent may help work through the numbers.