Tax Changes 2026-27: New Brackets, Standard Deduction & What You'll Save

From 1 July 2026, two significant changes take effect for Australian individual taxpayers. First, the 16% marginal tax rate (which applies to income between $18,201 and $45,000) drops to 15%.

This is a one percentage point reduction that benefits every taxpayer earning above the $18,200 tax-free threshold. Second, a new $1,000 standard deduction is introduced. This is a flat deduction that every taxpayer can claim without needing receipts, records, or evidence of actual expenses.

It replaces the need to track and claim small work-related deductions for millions of Australians who currently claim less than $1,000 in total deductions. The standard deduction is in addition to the tax-free threshold — it's not a replacement for existing deductions. Taxpayers who have more than $1,000 in legitimate deductions can still claim the higher amount under the existing system.

These changes were announced in the 2025-26 Federal Budget and legislated in late 2025. They apply to income earned from 1 July 2026 onwards, meaning you will see the benefit in your take-home pay from the first pay cycle after 1 July 2026 if your employer updates withholding rates promptly.

In plain English: The complete individual income tax rates for the 2026-27 financial year (1 July 2026 to 30 June 2027) are as follows. $0 to $18,200: nil. $18,201 to $45,000: 15 cents per dollar over $18,200 (down from 16 cents). $45,001 to $135,000: $4,020 plus 30 cents per dollar over $45,000 (the base amount changes from $4,288 to $4,020 because of the lower rate on the first bracket). $135,001 to $190,000: $31,020 plus 37 cents per dollar over $135,000 (adjusted base). $190,001 and above: $51,370 plus 45 cents per dollar over $190,000 (adjusted base). The 2% Medicare levy continues to apply on top of these rates for most taxpayers.

The key change is in that first taxable bracket. The reduction from 16% to 15% saves $268 per year for anyone earning $45,000 or above ($26,800 taxable in that bracket multiplied by the 1% saving). For someone earning $30,000, the saving is proportionally smaller — $118 per year (the $11,800 taxable in that bracket multiplied by 1%). Pretty straightforward once you know.

The standard deduction is a new concept for Australian tax. It works like this: every individual taxpayer is entitled to reduce their taxable income by $1,000 without providing any evidence or receipts.

You don't need to have incurred any actual expenses — the deduction is automatic. If you currently claim less than $1,000 in total work-related and other deductions, the standard deduction replaces your existing claims and you come out ahead (or at worst, the same). If you currently claim more than $1,000 in deductions, you ignore the standard deduction and continue claiming your actual expenses as normal.

You can't claim both — it's one or the other. The ATO has confirmed that approximately 8.5 million taxpayers currently claim less than $1,000 in total deductions. For these people, the standard deduction is an automatic tax cut plus a massive simplification — no more keeping receipts for $150 in work uniforms, $80 in phone expenses, and $200 in home office costs.

The short version: The tax saving from the $1,000 standard deduction depends on your marginal rate: at 15% ($18,201-$45,000 income), you save $150; at 30% ($45,001-$135,000), you save $300; at 37% ($135,001-$190,000), you save $370; at 45% ($190,001+), you save $450. For the majority of workers on incomes between $50,000 and $135,000, the standard deduction is worth $300 per year in addition to the bracket change.

Here's what individual taxpayers at various salary levels will pay under the current 2025-26 rates versus the new 2026-27 rates (including the standard deduction at the 2026-27 marginal rate, and assuming the taxpayer currently claims less than $1,000 in deductions). At $50,000 salary: 2025-26 tax = $6,717 (including Medicare). 2026-27 tax = $6,249.

Annual saving = $468. At $75,000 salary: 2025-26 tax = $14,217. 2026-27 tax = $13,449. Annual saving = $768.

At $100,000 salary: 2025-26 tax = $22,717. 2026-27 tax = $21,949. Annual saving = $768. At $120,000 salary: 2025-26 tax = $28,717. 2026-27 tax = $27,949.

Annual saving = $768. At $150,000 salary: 2025-26 tax = $40,267. 2026-27 tax = $39,129.

Real talk — Annual saving = $1,138. At $200,000 salary: 2025-26 tax = $58,767. 2026-27 tax = $57,479. Annual saving = $1,288.

The combined saving from both changes ranges from roughly $468 per year at $50,000 to $1,288 at $200,000. In per-fortnight terms, that's an extra $18 to $50 in your take-home pay — meaningful but not life-changing. The biggest proportional benefit goes to lower-income earners: the $468 saving on a $50,000 salary represents a 7% reduction in tax, while the $1,288 saving on $200,000 represents only a 2.2% reduction.

The biggest winners from the 2026-27 changes are middle-income earners in the $45,000 to $90,000 bracket who currently claim minimal deductions. They get the full $268 bracket saving plus the $300 standard deduction benefit, totalling $568 per year.

Workers earning below $18,200 (the tax-free threshold) receive no benefit because they already pay no tax. Part-time workers earning between $18,201 and $45,000 receive a proportional bracket benefit plus a standard deduction saving at the 15% rate ($150), for a total saving of $118 to $418 depending on income. High-income earners above $190,000 get the full $268 bracket saving plus the $450 standard deduction benefit (if they claim under $1,000 currently), but many in this bracket already claim well over $1,000 in deductions through investment property expenses, self-education, and professional memberships — so the standard deduction provides them no additional benefit.

Taxpayers who already claim deductions above $1,000 benefit only from the bracket change ($268/year for those above $45,000). This includes most property investors, many professionals with significant work-related expenses, and self-employed individuals. The ATO estimates that approximately 3.5 million taxpayers claim over $1,000 in deductions and won't benefit from the standard deduction component.

One thing people miss: The standard deduction is not stackable with itemised deductions — you choose one or the other for each tax return. If your total claimable deductions (work-related expenses, self-education, home office, tools, uniforms, union fees, income protection insurance, and other allowable deductions) exceed $1,000, you should continue claiming itemised deductions.

If they're below $1,000, the standard deduction automatically gives you a better result. Importantly, the standard deduction doesn't affect deductions for things outside the work-related category. You can still claim the standard deduction AND claim deductions for investment property expenses, charitable donations (via the gift tax offset), and personal super contributions.

The $1,000 standard deduction replaces only the work-related and other general deduction categories. The ATO has confirmed that the standard deduction will be a simple tick-box on your tax return (or pre-filled if you use myTax). Your tax agent can advise which option produces the lower tax bill.

For most PAYG employees with straightforward tax affairs, the standard deduction will be the obvious choice and will significantly reduce the time and cost of preparing a tax return.

The ATO will update PAYG withholding schedules for the new rates effective 1 July 2026. Employers who use automated payroll software (most medium and large employers) will update withholding in the first or second pay cycle of July.

Heads up — Smaller employers using manual calculations may take a few weeks longer. The standard deduction will also be factored into withholding calculations, meaning you should see the full benefit reflected in your regular pay without needing to wait until you lodge your tax return. For a worker on $75,000, the combined benefit is approximately $768 per year or $29.54 per fortnight.

On $100,000, it's also $768 per year or $29.54 per fortnight. On $50,000, it's $468 per year or $18 per fortnight. These are not large amounts per pay period, but over a full year they add up — and they arrive at a time when households are dealing with higher mortgage repayments, elevated grocery costs, and rising energy bills.

Every dollar of tax relief helps in the current cost-of-living environment.