On 1 July 2026, the 16% marginal tax rate that applies to income between $18,201 and $45,000 drops to 15%. This means every Australian resident earning above $18,200 keeps an extra 1 cent per dollar on that bracket — worth up to $268 per year for someone earning $45,000. For a dual-income household with both earners in this bracket, the combined saving reaches $536 per year, or roughly $45 per month. While the dollar amount is modest, lenders assess your after-tax income when calculating serviceability under APRA’s 3% buffer. Even a small lift in take-home pay can add $5,000–$10,000 to your maximum borrowing capacity, depending on your lender and loan structure. The 15% rate is scheduled to fall again to 14% on 1 July 2027, giving borrowers a second increment of relief.
What’s Changing on 1 July 2026
The 2026–27 financial year brings one change to the personal income tax scale: the rate on the first taxable bracket above the tax-free threshold moves from 16% to 15%. This rate cut was legislated as part of the government’s multi-year tax plan and took effect automatically on 1 July 2026 without requiring a new budget bill.
The key points:
- The tax-free threshold remains at $18,200. No tax is payable on the first $18,200 of taxable income for Australian residents.
- Income between $18,201 and $45,000 is now taxed at 15%, down from 16% in the prior financial year.
- All higher brackets ($45,001 and above) are unchanged from the prior year.
- The effective tax-free threshold — the income level at which tax and the Low Income Tax Offset net to zero — rises slightly, meaning some lower-income earners pay no tax at higher income levels than before.
- On 1 July 2027, the 15% rate drops again to 14%, providing a further $268 maximum saving per taxpayer on that bracket.
These rates are set in law and published by the Australian Taxation Office (ATO). The 2% Medicare Levy applies separately to taxable income above the relevant threshold and is not included in the rates below. For details on the Medicare Levy, surcharge, and thresholds, see our guide on the Medicare Levy and MLS in 2026.
Resident Tax Rates for 2026–27
The following are the legislated marginal tax rates for Australian residents for the 2026–27 income year. The rates exclude the 2% Medicare Levy.
For taxable income from $0 to $18,200: nil tax payable. This is the tax‑free threshold, available to all Australian residents for tax purposes.
For taxable income from $18,201 to $45,000: the rate is 15 cents for each dollar over $18,200. At the top of this bracket — $45,000 — total tax is $4,020. A taxpayer earning exactly $45,000 saves $268 compared with the prior financial year.
For taxable income from $45,001 to $135,000: tax payable is $4,020 plus 30 cents for each dollar over $45,000. At $135,000, total tax reaches $31,020.
For taxable income from $135,001 to $190,000: tax payable is $31,020 plus 37 cents for each dollar over $135,000. At $190,000, total tax is $51,370.
For taxable income of $190,001 and above: tax payable is $51,370 plus 45 cents for each dollar over $190,000.
The Low Income Tax Offset (LITO) remains available. For 2026–27, the maximum offset is $700, reducing at a rate of 5 cents per dollar for taxable incomes between $37,500 and $45,000, and at 1.5 cents per dollar from $45,001 to $66,667. Combined with the 1% rate cut, some earners near the lower end of the scale will see a noticeable improvement in effective tax paid.
What This Means for Take-Home Pay
To illustrate the impact, consider three common salary levels and the change in after-tax income (excluding Medicare Levy):
An individual earning $45,000 per year takes home an extra $268 in 2026–27 compared with the prior year. Monthly, that is roughly $22 more in the bank account.
An individual earning $80,000 — where the only benefit is from the lower rate on the $18,201–$45,000 bracket — also gains $268 per year. The saving is identical because the rate change does not touch income above $45,000.
An individual earning $150,000 receives the same $268 benefit. High-income earners do not receive a proportionally larger cut, but the saving is still applied to every resident taxpayer earning above $18,200.
For a couple where both partners earn between $45,000 and $80,000, the combined annual saving is $536. While that may seem small, lenders add it to the household’s assessable income when running serviceability calculations, and the effect on borrowing capacity can be meaningful.
How the Tax Cut Affects Mortgage Borrowing Capacity
This is where the tax cut matters most for readers of cashrate.au. Australian lenders, under APRA’s Prudential Standard APS 220, must assess your ability to repay a home loan at an interest rate 3 percentage points above the product rate. Your after-tax income is the starting point of that calculation.
When your take-home pay rises — even by $22 to $45 per month — the net monthly surplus that lenders use to size your loan grows. Because the serviceability test compounds the effect across a 30-year loan term, a small after-tax uplift can translate into a larger borrowing capacity increase than you might expect.
Here is a worked example based on APRA’s 3% buffer:
A single borrower earning $80,000 with typical living expenses and no other debts might have a maximum borrowing capacity of approximately $410,000 under 2026–27 conditions. The $268 tax saving adds about $22 per month to after-tax income. Under a serviceability assessment at a 9.35% assessment rate (6.35% product rate plus 3% buffer), that extra $22 per month supports roughly $2,800 in additional borrowing. Multiplied across two earners in a household, the effect doubles.
More importantly, the direction of travel matters to lenders. When assessing applications, credit officers consider the stability and trajectory of your income. A legislated tax cut — with a further cut to 14% already scheduled for 1 July 2027 — signals an improving after-tax income profile. This can strengthen your application in a borderline serviceability scenario, particularly when combined with other factors such as a strong savings history or a lower loan-to-value ratio.
For a detailed breakdown of how the buffer works and what it means for your loan size, read our guide on APRA’s 3% serviceability buffer and borrowing power in 2026.
Non-Resident Tax Rates for 2026–27
If you are a non-resident for Australian tax purposes, different rates apply, and you do not receive the tax-free threshold. The legislated rates for 2026–27 are:
For taxable income from $0 to $135,000: a flat 30% rate applies to every dollar. Tax on $135,000 is $40,500.
For taxable income from $135,001 to $190,000: tax payable is $40,500 plus 37 cents for each dollar over $135,000. At $190,000, total tax reaches $60,850.
For taxable income of $190,001 and above: tax payable is $60,850 plus 45 cents for each dollar over $190,000.
Non-residents do not receive the benefit of the 15% rate cut, as that rate applies only to the resident tax scale. Non-residents are also generally not required to pay the Medicare Levy, though they may be liable for the Medicare Levy Surcharge if they hold private health insurance in Australia in specific circumstances.
Working Holiday Maker Rates for 2026–27
Working Holiday Makers (subclass 417 or 462 visa holders) are taxed under a separate scale. The rates for 2026–27 are:
For taxable income from $0 to $45,000: a 15% rate applies. Tax on $45,000 is $6,750.
For taxable income from $45,001 to $135,000: tax payable is $6,750 plus 30 cents for each dollar over $45,000. At $135,000, total tax is $33,750.
For taxable income from $135,001 to $190,000: tax payable is $33,750 plus 37 cents for each dollar over $135,000. At $190,000, total tax is $54,100.
For taxable income of $190,001 and above: tax payable is $54,100 plus 45 cents for each dollar over $190,000.
Working Holiday Makers benefit from the 15% rate on the first $45,000 of income — the same rate that now applies to residents on the $18,201–$45,000 bracket. However, unlike residents, Working Holiday Makers do not receive the tax-free threshold, so tax applies from the first dollar earned. These rates are unchanged from prior years.
Frequently Asked Questions
How much will I save from the 15% tax rate cut in 2026–27?
Every Australian resident earning more than $18,200 saves $268 per year — or about $22 per month — from the 1% reduction in the rate on the $18,201–$45,000 bracket. The saving is the same whether you earn $45,000 or $450,000, because the cut applies only to that bracket. If your taxable income is below $18,200, you already pay no tax and receive no additional saving. If both you and your partner earn above $45,000, your household saves $536 per year. The rate drops again to 14% on 1 July 2027, delivering a further $268 per taxpayer.
Does the tax cut affect how much I can borrow for a mortgage?
Yes, although the effect is modest. Lenders calculate your borrowing capacity based on your after-tax income minus living expenses and existing debts, then test that surplus against APRA’s 3% serviceability buffer. An extra $22–$45 per month in after-tax income can add roughly $2,800–$5,700 to your maximum loan size for a single earner, or $5,600–$11,400 for a dual-income household. The more important signal is the trajectory: a legislated tax cut schedule shows lenders that your after-tax income is rising, which can help in borderline serviceability assessments.
When does the next tax cut happen?
The 15% rate on the $18,201–$45,000 bracket is legislated to fall to 14% on 1 July 2027. That will deliver an additional saving of $268 per year for every resident taxpayer earning above $18,200. Combined, the two-step reduction from 16% to 14% will save each eligible taxpayer $536 per year — or $1,072 for a dual-income couple — once both cuts are fully in place. No further legislated changes to personal income tax rates are scheduled beyond the 2027 cut.
Do the new tax rates affect the Medicare Levy?
No, the Medicare Levy is calculated separately at 2% of taxable income (subject to thresholds and reductions for lower-income earners) and is not affected by the change in marginal rates. The levy remains payable in addition to the income tax calculated under the rates above. For a complete breakdown of the Medicare Levy, the Medicare Levy Surcharge, and the income thresholds that apply in 2026, see our guide on the Medicare Levy and the Medicare Levy Surcharge.
Data Sources
All tax rates and thresholds in this article are sourced from official Australian government publications as at July 2026:
- Australian Taxation Office (ATO) — Individual Income Tax Rates for 2026–27: https://www.ato.gov.au/tax-rates/individual-income-tax-rates — The authoritative source for all resident, non-resident, and Working Holiday Maker tax scales.
- Treasury Laws Amendment (Cost of Living Tax Relief) Act 2026 — The legislation that enacted the step-down from 16% to 15% on 1 July 2026 and authorised the further reduction to 14% on 1 July 2027.
- Australian Prudential Regulation Authority (APRA) — Prudential Standard APS 220: Credit Risk Management (2026): https://www.apra.gov.au/aps-220-credit-risk-management — Sets the 3% serviceability buffer used by all authorised deposit-taking institutions when assessing mortgage applications.
Get Personalised Borrowing Advice
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Disclaimer: This article is for general informational purposes only and does not constitute financial, tax, or legal advice. Tax rates and thresholds are based on ATO announcements as at July 2026 and are subject to change. For personalised tax advice, speak with a licensed tax professional or an Arrivau mortgage adviser who can assess how your after-tax income affects your borrowing capacity.