Tax Return 2026: Every Change for the 2025-26 Financial Year
Complete summary of tax changes for your 2025-26 tax return — Stage 3 tax cuts, new $1,000 standard deduction, HECS threshold changes, LITO updates, and what they mean for your refund.
Overview of tax changes for 2025-26
The 2025-26 financial year (1 July 2025 to 30 June 2026) includes several significant tax changes that will affect most Australian taxpayers when they lodge their returns from July 2026. The headline changes are: the revised Stage 3 tax cuts continue in their second year of operation, providing ongoing tax relief across all income levels; the new $1,000 standard deduction for work-related expenses is being introduced (subject to start date confirmation), simplifying returns for millions of workers; HECS-HELP repayment thresholds have been adjusted; and the Low Income Tax Offset (LITO) and Medicare Levy Surcharge thresholds have been updated. Taken together, these changes mean most workers will pay less tax in 2025-26 than they did in 2024-25 on the same income, and the return lodgement process will be simpler for those opting for the standard deduction. Below we break down each change in detail so you know exactly what to expect.
Stage 3 tax cuts: second year in effect
The revised Stage 3 tax cuts, which took effect on 1 July 2024, continue for the 2025-26 financial year. These cuts reshaped the tax brackets to provide relief across all income levels rather than concentrating benefits at the top end as originally legislated. The current personal income tax brackets for 2025-26 are: 0% on income up to $18,200 (tax-free threshold), 16% on income from $18,201 to $45,000 (reduced from 19%), 30% on income from $45,001 to $135,000 (reduced from 32.5% up to $120,000), 37% on income from $135,001 to $190,000, and 45% on income above $190,000. Compared to the pre-Stage 3 brackets, a worker earning $70,000 saves approximately $1,429 per year in tax, someone on $100,000 saves around $2,429, and a $150,000 earner saves approximately $3,729. These savings are already reflected in your take-home pay through updated PAYG withholding schedules — so you have been receiving the benefit in each pay packet since July 2025, rather than waiting for a lump-sum refund. The brackets are not indexed to inflation, so bracket creep will gradually erode the benefit over time unless the government legislates further changes.
The new $1,000 standard deduction for work expenses
One of the most significant simplification measures in recent tax history, the $1,000 standard deduction for work-related expenses allows taxpayers to claim a flat $1,000 deduction without needing to keep receipts or substantiate individual claims. This is designed to replace the complex process of tracking and claiming individual work-related expenses like uniforms, tools, home office costs, phone and internet, and self-education. If your actual work-related expenses are less than $1,000, the standard deduction will give you a better outcome with zero record-keeping effort. If your actual expenses exceed $1,000, you can still choose to claim the itemised method and claim the full amount (with substantiation). The ATO estimates that approximately 8 million taxpayers claim $1,000 or less in work-related deductions each year, meaning the standard deduction will simplify returns for the majority of workers. Important caveats: the standard deduction covers work-related expenses only — it does not replace deductions for investment expenses, self-education related to your current employment, or charitable donations, which are claimed separately. Also, the $1,000 is a deduction, not a credit — it reduces your taxable income by $1,000, which means the actual tax saving depends on your marginal rate (e.g., $300 at the 30% rate, $370 at the 37% rate).
HECS-HELP repayment changes for 2025-26
The HECS-HELP (now called HELP) repayment system has been adjusted for 2025-26, with changes to both the repayment thresholds and the indexation methodology. The minimum repayment threshold — the income level at which you start repaying your HELP debt — has been increased to approximately $54,435 for 2025-26 (up from $51,550 in 2024-25). If your repayment income is below this threshold, you do not need to make any repayments. The repayment rates remain progressive, starting at 1% of your total repayment income at the threshold and increasing in steps up to 10% for incomes above approximately $151,200. Crucially, the government has changed the indexation method for HELP debts — from 1 June 2025, HELP debts are indexed at the lower of CPI or the Wage Price Index (WPI), rather than CPI alone. This change was made retrospective to 1 June 2023, meaning many graduates received a credit on their HELP debt to reverse the impact of the high CPI indexation applied in 2023 and 2024. For a graduate with a $30,000 HELP debt, the retrospective adjustment could mean a credit of $1,000 to $2,000. Check your myGov account linked to the ATO to see your current HELP balance including any credits. Use our HECS Calculator to estimate your annual repayments based on your income.
Low Income Tax Offset (LITO) and other offsets
The Low Income Tax Offset (LITO) continues for 2025-26, providing up to $700 in tax offset for individuals earning up to $45,000. The offset phases in and out: you receive the full $700 if your taxable income is $37,500 or less, it reduces by 5 cents per dollar from $37,501 to $45,000, and phases out entirely above $45,000. Importantly, LITO is a non-refundable offset — it can reduce your tax liability to zero but cannot generate a refund on its own. Combined with the tax-free threshold and Stage 3 bracket changes, a low-income worker earning $25,000 pays effectively zero tax. The Medicare Levy remains at 2% of taxable income, with the low-income threshold for singles increased to $26,000 for 2025-26 (up from $24,276). Below this threshold, you pay no Medicare Levy; between $26,000 and $32,500, a reduced levy applies. The Medicare Levy Surcharge — an additional 1% to 1.5% levy for higher-income earners without private hospital cover — applies at income thresholds of $93,000 for singles and $186,000 for families. If you are approaching these thresholds and do not have hospital cover, taking out a basic policy can save you more than the premiums cost.
Superannuation contribution changes
The concessional (before-tax) superannuation contributions cap for 2025-26 is $30,000, unchanged from the previous year. This includes employer SG contributions, salary sacrifice amounts, and any personal contributions you claim as a deduction. With the SG rate at 12%, an employee earning $150,000 has $18,000 contributed by their employer, leaving $12,000 of cap space for additional salary sacrifice or personal deductible contributions. The non-concessional (after-tax) contributions cap is $120,000, with the option to bring forward up to three years of caps ($360,000) for those under 75. The total superannuation balance threshold affecting eligibility for certain contribution strategies is $1.9 million. If your total super balance exceeds this amount at the previous 30 June, your non-concessional cap is reduced to nil. The carry-forward provisions remain available — if you have not used your full $30,000 concessional cap in previous years (going back to 2018-19), you can carry forward unused amounts, provided your total super balance was below $500,000 at the previous 30 June. This is particularly useful for catch-up contributions during high-income years. Contributing to super via salary sacrifice remains one of the most tax-effective strategies for those earning above $45,000, as contributions are taxed at 15% inside super versus your marginal rate of 30% or more outside.
Working from home deduction changes
The ATO's revised fixed-rate method for claiming working from home expenses continues for 2025-26. The fixed rate is 67 cents per hour worked from home, covering electricity, gas, phone, internet, stationery, and computer consumables. You can claim this rate for every hour you work from home, provided you keep a record of actual hours worked (a timesheet, diary, or roster is acceptable). Importantly, this rate does not cover the decline in value of office furniture and equipment (desk, chair, monitor, etc.) or repairs — these must be claimed separately using the actual cost method if you want to claim them. If you work from home for more than half your working hours, you may be better off using the actual cost method, where you calculate the specific expense of each category and claim the work-related portion. This requires more detailed record-keeping but can result in a higher deduction, particularly if you have a dedicated home office with significant electricity and internet usage. The ATO has flagged work-from-home claims as a priority audit area for 2025-26 tax returns, so ensure your records are thorough — you need to be able to show the actual hours worked from home across the year, not just an estimate.
How to maximise your 2025-26 tax return
With three months remaining in the 2025-26 financial year, there are still steps you can take to optimise your tax position. First, decide whether the standard deduction or itemised claims will be better for you — if you have already accumulated more than $1,000 in work-related expenses with receipts, stick with itemised claims. If not, the standard deduction saves you the hassle. Second, consider making a personal super contribution before 30 June and claiming it as a tax deduction — this is one of the most powerful tax-saving strategies available, saving you the difference between your marginal rate and the 15% super tax rate. Third, prepay deductible expenses before 30 June where possible — income protection insurance premiums, professional subscriptions, and union fees are common candidates. Fourth, review your private health insurance status relative to the Medicare Levy Surcharge thresholds. Fifth, bring forward any capital losses by selling underperforming investments before 30 June to offset capital gains realised during the year. Sixth, ensure your HELP repayment threshold is correct by reviewing your payslip withholding — over-withholding ties up your money unnecessarily until you lodge your return. Use our Tax Calculator to estimate your 2025-26 tax position and our Standard Deduction Calculator to compare the flat $1,000 against your actual expenses.
Try these free tools
Official resources
General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
Related articles
Everything you need to know about HECS-HELP repayment thresholds for 2025-26, including the new rates, how indexation works after the recent controversy, and strategies to manage your student debt.
Australian Tax Brackets 2025-26: Rates, Thresholds & How Much You'll PayFull breakdown of Australian income tax brackets for 2025-26 including the Stage 3 tax cuts, PAYG tables, and take-home pay examples.
How to Lodge Your Tax Return in Australia 2025-26 (Step-by-Step)A step-by-step guide to lodging your Australian tax return through myTax, including deadlines, what you need, and common mistakes to avoid.
Tax Deductions You Can Claim in Australia 2025-26: The Full ListMaximise your tax refund with this comprehensive list of deductions for employees, including work-from-home, car, uniform, and education expenses.