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Federal Budget 2026-27: What you need to know about Individual Tax Amendments

  • 4 days ago
  • 2 min read

The 2026–27 Federal Budget has codified several structural changes to the Australian taxation system. These measures introduce a combination of threshold adjustments, new offsets, and a shift toward simplified deduction processes.


Let's break it down.



First, as Chartered Accountants, Tier Accounting provides this objective breakdown to help clients manage your tax obligations and planning for the 2025–26 financial year and beyond. It is general, and in our discussions we can get into much most detail as to how this impacts you.


1. Adjusted Medicare Levy Low-Income Thresholds


Consistent with indexation practices, the Government has increased the Medicare levy low-income thresholds by 2.9%, effective from 1 July 2025. These adjustments ensure that individuals on lower incomes remain exempt from the levy or qualify for a reduced rate.  

Category

2024-25 Threshold

2025-26 Threshold

Singles

$27,222

$28,011

Families

$45,907

$47,238

Single Seniors & Pensioners

$43,020

$44,268

Seniors & Pensioners in a Family

$59,886

$61,623

Note: For families, the threshold increases by $4,338 for each dependent child or student (previously $4,216).  


2. Personal Tax Rates and the Working Australians Tax Offset (WATO)


The Budget confirms a phased reduction in personal income tax for the lowest bracket and the introduction of a new offset.  


  • Bracket Reductions: The 16% tax rate for income between $18,201 and $45,000 will decrease to 15% on 1 July 2026, and further to 14% on 1 July 2027.  


  • WATO: From 1 July 2027, a non-refundable tax offset of up to $250 will be available to those earning employment or sole trader business income.  


Analysis of the Impact


For a taxpayer earning $80,000:


  • 2025–26 FY: Tax payable (excl. Medicare) is $14,788.  


  • 2027–28 FY: Once the bracket reaches 14% and the WATO is applied, the tax on the same income is estimated at $14,002.


  • Effective Threshold: For eligible workers, the effective tax-free threshold will rise to $19,985 (or $24,985 when combined with the Low Income Tax Offset).  


3. The $1,000 Instant Tax Deduction


Starting 1 July 2026 (the 2026–27 income year), the Government will introduce an Instant Tax Deduction for work-related expenses.  


  • Eligibility: Australian residents deriving employment income can claim an automatic $1,000 deduction without the need to itemise expenses or retain receipts, provided their total work-related claim is $1,000 or less.  


  • Substantiation: Taxpayers with legitimate expenses exceeding $1,000 may still claim the higher amount; however, they must continue to adhere to existing record-keeping and substantiation requirements.  


  • Exclusions: This measure applies to work-related expenses. Donations to DGRs, union fees, and professional membership fees remain claimable separately and in addition to this $1,000 threshold.  


Professional Advisory

  

While these measures aim to simplify the tax experience, they also alter the timing of tax benefits. For instance, the benefit of the Instant Tax Deduction is not realised until the 2026–27 tax return is lodged in late 2027.


At Tier Accounting, we combine technical competence with a supportive approach to help you navigate these transitions. Objective year-end planning is essential to ensure your tax position is optimised under these new legislative frameworks.


Ready for the Tax Season?


Get in touch to book in a consultation to discuss your situation.



 
 
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