Introduction: What Are the 2025–26 Australian Income Tax Cuts?
The 2025–26 Australian income tax cuts were introduced in the Federal Government’s Budget to deliver tax relief to working Australians and adjust the tax system for wage growth, cost-of-living pressures and inflation. Coming into effect from 1 July 2025, the cuts will reshape the tax brackets and reduce the overall income tax burden for millions of taxpayers.
Whether you’re an employee, contractor, sole trader, or small business owner drawing a wage, understanding these changes is essential to make the most of your income and plan for the financial year ahead.
In this article, we’ll break down the 2025–26 Australian income tax cuts, what’s changing, who benefits most and how to prepare.
The New 2025–26 Tax Brackets Explained
The revised tax schedule reduces marginal tax rates for most Australians. Here’s a summary of the new income tax brackets that will apply from 1 July 2025:
These changes simplify the system and provide immediate relief to low- and middle-income earners, who have faced increasing financial strain due to inflation and interest rate rises.
Key Changes in the 2025–26 Australian Income Tax Cuts
- The lowest tax bracket (for incomes between $18,201–$45,000) will be reduced from to 15%, helping millions of lower-income workers keep more of their pay.
- A new broad middle tax bracket of 30% will apply to incomes between $45,001 and $135,000 – replacing the old 32.5% and 37% thresholds.
- Higher-income earners will still be taxed at 37% or 45%, but the brackets have shifted to begin at higher income levels.
These changes aim to provide tax relief across the board while reducing bracket creep – where inflation pushes workers into higher tax brackets without a real increase in purchasing power.
How Much Will You Save?
The savings vary depending on your taxable income. Here’s a general guide to how much better off individuals will be annually:
Note: These estimates assume no deductions and standard Medicare Levy. Actual savings will depend on your full financial profile.
Who Benefits the Most From the 2025–26 Australian Income Tax Cuts?
These changes aim to provide broad tax relief, but certain groups will benefit more than others:
- Middle-income earners (between $45,000 and $135,000) will see the largest reductions due to the new 30% tax rate.
- Low-income workers benefit from the reduction of the entry-level tax rate from 19% to 15%.
- Dual-income households with two earners in the middle-income range will receive the highest combined savings.
In contrast, very high-income earners ($190,001+) see a smaller proportional benefit, as the 45% rate still applies to income above that threshold.
What Should You Do Now to Prepare?
The tax cuts won’t begin until 1 July 2025, but there are a few key ways to plan ahead and maximise the benefit:
1. Adjust PAYG Withholding (If Necessary)
From July 2025, employers will adjust withholding schedules to reflect the new rates. If you’re self-employed or have variable income, consider reviewing your PAYG instalments to ensure you’re not overpaying.
2. Revisit Salary Packaging
With the new 30% bracket covering a wide income range, salary packaging options (such as novated leases or super contributions) may need to be recalculated to remain tax-effective.
3. Plan Large Financial Moves
If you’re considering a major asset purchase, business investment, or strategic tax decision, understanding your expected after-tax income from July 2025 can help you time your actions wisely.
4. Talk to a Tax Specialist
Tax changes often have ripple effects beyond your income. Engaging a professional advisor – especially if you’re a contractor, investor, or small business owner – can help align your strategy with the new structure.
What About Small Business Owners?
If you’re a sole trader or company director who draws income as wages, you’ll be impacted by the same tax brackets as employees. However, tax cuts also present opportunities to review:
- Business structure efficiency (e.g., switching between sole trader, company, or trust)
- Superannuation contributions
- Income-splitting opportunities
- Retained earnings strategy
The changes may also affect how you distribute dividends or plan end-of-year tax positions, so now is the time to start discussions with your accountant.
How Do These Cuts Fit into the Broader Tax Reform Plan?
The 2025–26 income tax cuts are part of a multi-stage tax reform package that has been evolving since 2018. Originally scheduled as “Stage 3” of the plan, the revised version introduced in 2024 reshaped both the rates and thresholds to make the system more progressive while still addressing bracket creep.
The changes also set the tone for ongoing conversations about tax policy in Australia, particularly regarding income distribution and fiscal sustainability.
Let Tax Negotiators Help You Plan Ahead
At Tax Negotiators, we stay on top of every tax policy shift – so you don’t have to.
We can help you:
- Understand how the 2025–26 Australian income tax cuts affect your individual or business income
- Recalculate your tax planning strategy
- Identify opportunities to reduce tax liability and increase your after-tax income
- Review your PAYG setup, deductions and investment plans
Don’t wait until EOFY 2026 to start adjusting. Strategic planning now can help you maximise the benefits of the upcoming changes – and avoid surprises down the track.
Final Thoughts
The 2025–26 Australian income tax cuts offer much-needed relief for workers and businesses navigating rising costs. With significant changes to brackets and rates, now is the perfect time to revisit your financial plan and ensure you’re in the best position to benefit.
Whether you’re an employee, contractor, or small business owner – understanding how the cuts apply to your situation can help you make smarter decisions throughout the financial year.
Want to maximise your tax position ahead of the changes?
Reach out to the team at Tax Negotiators for personalised support and strategy.
