The 2025-26 Tax Cuts are Here: What They Mean for Your Take-Home Pay
Big changes are coming to Australia's tax system, and they're set to affect the take-home pay of millions. Starting from 1 July 2025, the government is rolling out a revised set of personal income tax cuts. But what does this actually mean for your wallet?
Whether you're a salaried employee, a freelancer, or a small business owner, these changes will impact your tax obligations. Let's break down exactly what's changing, who benefits the most, and how you can prepare.
A Quick Look: The Old vs. The New
First, let's compare the current tax brackets with the new ones that will apply from the 2025-2026 financial year.
Current 2024-2025 Tax Brackets:
$0 – $18,200: 0% (tax-free threshold)
$18,201 – $45,000: 19%
$45,001 – $120,000: 32.5%
$120,001 – $180,000: 37%
$180,001+: 45%
New 2025-2026 Tax Brackets:
$0 – $18,200: 0% (tax-free threshold remains)
$18,201 – $45,000: 16% (Reduced from 19%)
$45,001 – $135,000: 30% (Reduced from 32.5% and threshold increased)
$135,001 – $190,000: 37% (Threshold increased)
$190,001+: 45% (Threshold increased)
The key takeaway is that every taxpayer earning over $18,200 will see a tax reduction. The government has designed these changes to provide relief for low and middle-income earners while also simplifying the bracket system.
What's the Bottom Line for You? Let's See Some Examples
Numbers on a page are one thing, but how does this translate into actual savings? Let's look at a few common scenarios.
Example 1: Sarah, the Part-Time Retail Worker
Income: $40,000
Old Tax Payable: $4,242
New Tax Payable: $3,568
Annual Tax Saving: $674
Example 2: Ben, the Electrician
Income: $90,000
Old Tax Payable: $20,197
New Tax Payable: $17,868
Annual Tax Saving: $2,329
Example 3: Chloe, the IT Manager
Income: $150,000
Old Tax Payable: $41,297
New Tax Payable: $37,418
Annual Tax Saving: $3,879
As you can see, the savings become more significant as your income increases, with the maximum tax cut of $4,529 for those earning $190,000 or more.
How to Prepare and What to Do Next
While the tax cut will be automatically applied by your employer's payroll system (meaning you should see a boost in your take-home pay after 1 July 2025), it's a great opportunity to review your overall financial strategy.
Review Your Budget: With a bit more in your pocket each month, you can decide whether to put it towards savings, investments, or paying down debt.
Check Your Superannuation: Consider salary sacrificing some of your extra income into your super for a long-term retirement boost.
Plan for Year-End: These changes might affect how you approach tax planning, especially if you have investments or a side business.
Tax changes can be complex, and while these cuts are designed to be straightforward, everyone's financial situation is unique. Getting personalised advice can help you make the most of the new system and ensure you're setting yourself up for financial success.
Ready to see how the new tax cuts will specifically impact you and your business? The team at LKC Accountants is here to help. Contact us today for a personalised consultation and let's plan for a more profitable financial year!
