Key Highlights

  • The 15% rate applies to Taxable Income from $18,201 to $45,000 in 2026–27.
  • The one-percentage-point reduction saves up to $268 a year.
  • The rate is legislated to fall to 14% from 1 July 2027.
  • The tax-free threshold remains $18,200.

Since 1 July 2026, Australia's lowest marginal tax rate has been 15%, down from 16%. The one-point cut is already flowing through most payslips, and it is legislated to fall again, to 14%, from 1 July 2027. The amounts are modest, but they reach almost every taxpayer above the tax-free threshold. With bracket creep in the headlines, it is worth knowing what the change is worth.

What changed on 1 July 2026

The cut applies to income between $18,201 and $45,000. For the 2026–27 income year, that band is taxed at 15% instead of 16%. This is enacted law, not a proposal.

The rest of the resident rate scale is unchanged this year. Income up to $18,200 remains tax-free, income from $45,001 to $135,000 is taxed at 30%, income from $135,001 to $190,000 at 37%, and income above $190,000 at 45%. The Medicare levy is generally charged on top.

From 1 July 2027, the rate on the $18,201–$45,000 band is legislated to drop again, to 14%. That too is enacted.

What one percentage point is worth

The band is $26,800 wide, from $18,201 to $45,000. A one-point cut across the full band is worth 1% of $26,800, which is $268 a year.

That is the maximum saving from each one-point cut. Anyone earning $45,000 or more receives the full $268, because all of their income in that band is taxed at the lower rate. A worker on $45,000 and a worker on $250,000 receive the same dollar benefit.

People earning between $18,201 and $45,000 receive less, because only part of the band is filled. Someone earning $18,200 or less gets nothing, since they were not paying income tax on that income anyway. Because the dollar gain is capped, the cut is worth proportionally more to lower earners. For a worker on $45,000, $268 is about 0.6% of income, while for a worker on $200,000 it is about 0.13%.

Hypothetical example: three workers in 2026–27

Hypothetical example: three workers, each with the same income all year, compared under the 16% and 15% rates. Offsets and the Medicare levy are ignored to isolate the effect of the rate cut.

Worker A earns $30,000. Their income above the tax-free threshold is $11,800. One per cent of $11,800 is $118 a year.

Worker B earns $45,000. All $26,800 of the band is used, so the saving is $268 a year. Spread across 26 fortnightly pays, that is about $10.31 a fortnight.

Worker C earns $120,000. They also Fill the whole band, so they save the same $268 a year, or about $10.31 a fortnight. Their income above $45,000 is taxed at 30%, which has not changed. A higher income does not bring a bigger saving from this particular cut.

Actual take-home results will differ because of rounding in Withholding tables, the timing of pay, other income and offsets.

Why it falls to 14% in 2027

The cuts were legislated in 2025 as a two-step reduction in the bottom rate. The second step, to 14%, takes effect on 1 July 2027.

Compared with the old 16% rate, the combined two-point cut will be worth up to $536 a year from 2027–28, or about $20.62 a fortnight for someone paid fortnightly. Compared with this year's 15% rate, the extra cut is again up to $268. For Worker A in the example above, on $30,000, the second step would be worth a further $118, taking the combined saving to $236 a year compared with the old 16% rate.

Treasurer Jim Chalmers has presented the cuts as part of a series of measures to ease cost-of-living pressure and return bracket creep to workers. Critics, including the Coalition, argue fixed cuts are eventually eroded as wages rise, and have proposed indexing brackets from 2028. That is a proposal, not law. Recent analysis by the e61 Institute and economist Richard Holden found that without indexation a $45,000 worker's average tax rate could rise from 11% to 16% over a decade, which suggests the cuts offset only part of that drift.

For employees, the saving from the lower rate generally arrives through lower pay-as-you-go withholding rather than as a lump sum. The ATO publishes withholding schedules that employers use, and these are generally updated when rates change.

Because withholding is an estimate, the final position is worked out when the return for the year is lodged. Someone with several jobs, irregular income or Investment income may find the amount withheld differs from their final tax.

Contractors and others who pay through instalments may see the effect in their instalment amounts or at assessment, depending on their arrangements.

How it fits with other changes

The 15% rate is one of several personal tax changes now in law.

A $1,000 standard work-related deduction applies from 2026–27. Under the ATO's draft ruling LCR 2026/D5, the deduction is the lesser of $1,000 and assessable labour income, and it is reduced dollar for dollar by certain claimed expenses, such as working from home, car and self-education costs. The draft has not been finalised, so the details could still change when the ATO issues its final ruling.

A non-refundable $250 Working Australians Tax Offset is legislated from 2027–28, the same year the 14% rate begins.

For a lower-income worker, the deduction is generally worth its value multiplied by their marginal rate. At the 15% rate, a full $1,000 deduction would reduce tax by about $150, before the Medicare levy. That interaction means the value of the deduction also edges down when the rate falls to 14%.

What to watch

The Senate Economics Committee is due to report on 13 November 2026 on Labor's trust and housing tax bills, part of the government's broader tax program.

The Mid-Year Economic and Fiscal Outlook in December 2026 will update the budget cost of personal tax changes and projections for bracket creep.

The ATO's final ruling on the $1,000 standard deduction is expected to follow the draft LCR 2026/D5, for which comments closed on 9 October.

The 14% rate starts on 1 July 2027, and the $250 offset applies from 2027–28. Any Coalition indexation would begin in 2028 only if legislated.