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Key takeaways
- Cost-of-living relief remains the key driver behind personal tax announcements, with the introduction of a $250 Working Australians Tax Offset, available for individuals with earned income from 1 July 2027.
- All Australian taxpayers will benefit from previously legislated personal income tax cuts from 1 July 2026.
- A $1,000 instant tax deduction for working expenses to apply from 1 July 2026, assisting taxpayers who have low work-related expenses.
- The Medicare levy low-income thresholds will increase from 1 July 2025, providing further targeted relief to lower income individuals.
Working Australians Tax Offset
The 2026–27 Federal Budget announced the introduction of a “Working Australians Tax Offset” of up to $250, which aims to provide targeted tax relief to Australians who pay tax on their salary, wage or business income earned as a sole trader.
The offset, which will come into effect from the 2027–28 income year, is a permanent annual tax offset for Australians who derive earned income (i.e. employment and sole trader business income). This is expected to provide an ongoing annual tax cut for over 13 million Australian workers.
The Working Australians Tax Offset will operate alongside the low income tax offset, which is available to those with taxable income up to $66,667 and offers a maximum offset of $700 for those earning up to $37,500, and also the already legislated tax cuts as noted below.
Personal income tax cuts coming soon
The 2026–27 Federal Budget contained no new announcements in respect of personal income tax rates. However, the previously legislated reductions to personal income tax rates are scheduled to come into effect from 1 July 2026, building on the existing tax cuts that have applied since 1 July 2024.
Designed to provide more cost-of-living relief, return bracket creep, and boost labour supply, these tax cuts will be delivered by lowering the marginal tax rate for taxable income between $18,201 and $45,000. Currently at 16% for the 2024–25 and 2025–26 income years, this rate will reduce to 15% in 2026–27, and then to 14% for the 2027–28 and future income years.
A summary of these changes as they apply to Australian tax residents is provided in the table below.
| Taxable income ($) | Marginal tax rate (%) for 2025–26 | Marginal tax rate (%) for 2026–27 | Marginal tax rate (%) for 2027–28 |
|---|---|---|---|
| 0–18,200 | Nil |
Nil |
Nil |
| 18,201–45,000 | 16 |
15 |
14 |
| 45,001–135,000 | 30 |
30 |
30 |
| 135,001–190,000 | 37 |
37 |
37 |
| Above 190,000 | 45 |
45 |
45 |
The above rates do not include the Medicare levy, which remains at 2%. These rates are also independent of any available income tax offsets, including the newly announced Working Australians Tax Offset, which will apply from 1 July 2027.
For salary and wage earners, these modest tax cuts should begin to flow through to take-home pay from 1 July 2026 via PAYG withholding adjustments.
Medicare levy low-income thresholds
Consistent with prior years, the Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from 1 July 2025 as follows:
- the threshold for singles will increase from $27,222 to $28,011
- the family threshold will increase from $45,907 to $47,238
- for single seniors and pensioners, the threshold will increase from $43,020 to $44,268
- the family threshold for seniors and pensioners will increase from $59,886 to $61,623, and
- the family income thresholds will increase by $4,338 for each dependent child or student, up from $4,216.
The $1,000 instant deduction for work-related expenses
The 2026–27 Federal Budget reconfirmed the Government’s commitment to introduce an instant tax deduction of up to $1,000 from the 2026–27 income tax year, following the policy’s initial announcement during the 2025 Federal election.
Exposure draft legislation, which was released prior to the 2026–27 Federal Budget, has outlined how individuals can, from 1 July 2026, claim an upfront deduction of up to $1,000 for eligible work-related expenses without the usual tax substantiation requirements. This not only provides additional tax relief for any working taxpayers with work-related deductions below $1,000, but also operates as a compliance saving measure and simplifies the claiming process by removing the requirement to substantiate the deduction. However, taxpayers will not receive the benefit until their 2026–27 tax return is lodged and assessed.
Taxpayers with more than $1,000 in work-related expenses, or who only earn business or investment income, are unaffected by this change and can continue claiming deductions for their related expenses as usual.
“The Working Australians Tax Offset and the $1,000 instant tax deduction are a meaningful gesture toward cost-of-living relief, but their real significance lies in simplification. Removing the need to substantiate the first $1,000 of work-related expenses will save Australians time at tax time and is likely to reduce low-value disputes with the ATO. That said, workers should view these measures as a steady recalibration rather than a structural reform of the personal tax system.”
No superannuation changes
No further changes to superannuation were announced in this Budget. However, it should be remembered that the new tax imposed on super fund earnings of those individuals with a total superannuation balance above $3m is already in place to apply from 1 July 2026.
Samantha Vidler
Queensland Managing Partner, PwC Private Advisory Markets Leader, Brisbane, PwC Australia
Michael Dean
Partner, Private Wealth Leader, PwC Australia
Sharyn Frawley
Partner, Private, PwC Australia
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