There is a particular kind of confusion that surfaces in our office every September. A client comes in, mentions they have heard tax rates went down, and asks why their refund does not reflect it.
The answer is timing. The rates did change — but on 1 July 2026, which means they apply to the income year that is currently underway, not the one you are lodging a return for. The return covering the year ended 30 June 2026 is still assessed on the 2025-26 rates.
So this guide covers both: the rates that apply to your current return, and the ones now shaping your take-home pay.
Lodging yourself? The self-lodgement deadline for the 2025-26 return is 31 October 2026 — roughly five weeks away. If you lodge through a registered tax agent and are on their client list before that date, a later deadline generally applies. Try our Free Tax Calculator to estimates your refund or amount payable in about ten seconds.
Resident tax rates for 2025-26
These are the rates that apply to income earned between 1 July 2025 and 30 June 2026 — the return most people are lodging now.
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
These figures assume you were an Australian resident for tax purposes for the full year and entitled to the full tax-free threshold.
What changed on 1 July 2026
The rate on income between $18,201 and $45,000 dropped from 16% to 15%. That is the first of two legislated reductions — the same rate is set to fall again to 14% from 1 July 2027.
Importantly, none of the thresholds moved. Only the rate on that second band changed.
| Income band | 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% |
Current year rates (2026-27)
For completeness, here is what applies to income you are earning now:
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 15c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,020 plus 30c for each $1 over $45,000 |
| $135,001 – $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 |
What the cut is actually worth
Because the change applies to a band $26,800 wide, anyone earning above $45,000 gets the full benefit — about $268 a year. Below $45,000, the saving scales with income.
One point worth setting expectations on: a lower rate usually shows up as slightly more in each pay packet through reduced PAYG withholding, rather than as a bigger refund at tax time. If your withholding adjusts during the year, the benefit has already reached you.
How marginal rates actually work
This is the single most persistent misunderstanding in Australian personal tax, and it is worth addressing directly.
Moving into a higher bracket does not mean all your income is taxed at that higher rate. Each rate applies only to the slice of income that falls inside its band. Earning an extra dollar can never leave you worse off overall.
Worked example — $70,000 taxable income, 2025-26
| First $18,200 at 0% | $0 |
| $18,201 – $45,000 ($26,800) at 16% | $4,288 |
| $45,001 – $70,000 ($25,000) at 30% | $7,500 |
| Income tax before offsets and levy | $11,788 |
Want to check your own figures? Our Free Tax Calculator estimates your refund or amount payable in about ten seconds.
Note what this shows: someone on $70,000 has a marginal rate of 30%, but their average rate is closer to 17% before the Medicare levy and any offsets. Those two numbers get conflated constantly, and the difference matters when you are weighing up extra work or a pay rise.
Keeping your records straight all year
Our Small Business Financial Organisation Toolkit gives you a structured workbook for income, expenses, GST and year-end preparation — so tax time starts from organised records rather than a shoebox.
View the Toolkit →The Medicare levy
The standard Medicare levy is 2% of taxable income, and it sits on top of the rates in the tables above. Low-income earners pay a reduced levy or none at all.
For 2025-26, the thresholds for a single individual are:
| Category | Lower threshold | Upper threshold |
|---|---|---|
| All other taxpayers | $28,011 | $35,013 |
| Entitled to the seniors and pensioners tax offset | $44,268 | $55,335 |
Below the lower threshold, no levy is payable. Between the two figures, a reduced levy phases in. Above the upper threshold, the full 2% applies. The ATO calculates the reduction automatically when your return is lodged — there is nothing to claim.
Family thresholds are higher and increase for each dependent child. Reported figures for 2025-26 put the family threshold at $47,238, rising by $4,338 per dependent child or student, with a higher threshold again for families entitled to SAPTO. We would confirm the figure applying to your circumstances before relying on it.
The levy and the surcharge are different things. The Medicare levy is the standard 2%. The Medicare levy surcharge is an additional charge for higher earners without private hospital cover. They sound alike and get mixed up often — if you are unsure which applies to you, it is worth a conversation.
The Low Income Tax Offset
LITO reduces tax payable for lower income earners and is applied automatically — no claim required. Reported amounts for 2025-26 are up to $700 for taxable income to $37,500, tapering out entirely by around $66,667.
Combined with the tax-free threshold, LITO means many residents pay no income tax on earnings up to roughly $22,575. Because LITO is a non-refundable offset, it can reduce your tax to nil but will not generate a refund on its own.
Other rate schedules
Not everyone uses the resident table. Two common exceptions:
- Foreign residents do not receive the tax-free threshold and are taxed from the first dollar, starting at 30%.
- Working holiday makers on 417 or 462 visas follow their own schedule, beginning at 15% up to $45,000.
Residency for tax purposes is not the same as your visa status or citizenship, and it is a genuinely common source of error on self-lodged returns. If you arrived in or left Australia partway through the year, the calculation is more involved than it first appears.
What this means before you lodge
A few practical points as the deadline approaches:
- Your 2025-26 return uses the 16% second bracket, not the new 15% rate.
- Wait until your income statement shows Tax ready before lodging — lodging early against incomplete pre-fill data is a frequent cause of amendments.
- Check that private health insurance details, bank interest and any investment income have pre-filled correctly rather than assuming they have.
- If you run a business or hold a rental property, the brackets are only the final step — the deductions and apportionment decisions before that point usually matter more.
Frequently asked questions
Which rates apply to the return I am lodging now?
A return for the year ended 30 June 2026 uses the 2025-26 rates, including the 16% second bracket. The 15% rate applies to income earned from 1 July 2026 onwards.
Will the tax cut give me a bigger refund?
Not necessarily. A lower rate generally reduces PAYG withholding during the year, so the benefit arrives in your regular pay rather than as a larger refund. Your final position still depends on deductions, offsets, levies and any study loan.
Does a pay rise push all my income into a higher bracket?
No. Each rate applies only to the income within its band. A pay rise is taxed at your marginal rate on the additional amount only, and never reduces your overall after-tax income.
Do I need to claim the Medicare levy reduction or LITO?
No. The ATO applies both automatically when your return is processed.
What if I have already lodged and the figures look wrong?
Returns can be amended. If something looks incorrect, it is better to address it than leave it — get in touch and we can review the position.
General information only. This article sets out general rates and thresholds and does not take into account your objectives, financial situation or individual circumstances. It does not constitute personal tax, accounting, legal or financial advice. Rates, thresholds and eligibility rules change, and the figures above should be confirmed against current ATO guidance before you act on them. Please obtain advice suited to your circumstances.
Australian Taxation Office — Tax rates – Australian resident (last updated 13 August 2026)
Australian Taxation Office — Personal income tax – new tax cuts for every Australian taxpayer (last updated 13 May 2026)
Australian Taxation Office — Medicare levy reduction for low-income earners (last updated 30 June 2026)