Key takeaways
- The $18,201 – $45,000 marginal rate drops from 16% to 14% in two steps (2026 → 2027 → 2028 income year).
- From the 2027 income year, you can opt for a $1,000 standard deduction for work-related expenses — no receipts required if you stay under $1,000.
- From the 2028 income year, a new Working Australians Tax Offset (WATO) provides up to $250 per year as a permanent offset.
- Medicare Levy low-income thresholds rise 2.9% from 1 July 2025 — singles threshold moves from $27,222 to $28,011.
- From 1 April 2027, the age-based uplift in the Private Health Insurance Rebate is removed for those 65+.
Personal tax is one of the most-watched parts of the 2026–27 Federal Budget. The package contains several measures that will affect ordinary employees, sole traders, the self-employed and lower-income families across the coming income years.
This article summarises the key changes so you can plan ahead before they take effect.
1. Personal income tax rates continue to fall
The Government confirmed that legislated personal income tax cuts will proceed as planned.
From 1 July 2026, the rate applying to taxable income between $18,201 and $45,000 falls from 16% to 15%.
From 1 July 2027, the same threshold drops further to 14%.
The path of the bottom bracket:
- 2026 income year: 16%
- 2027 income year: 15%
- 2028 income year: 14%
The other main brackets are unchanged for now — 30% applies from $45,001 to $135,000, 37% from $135,001 to $190,000, and 45% above $190,000.
The cuts mainly benefit low- and middle-income taxpayers.
2. $1,000 standard deduction for work-related expenses
From 1 July 2026 (the 2027 income year), the Government plans to introduce a $1,000 standard deduction for work-related expenses.
The measure applies to eligible Australian tax residents with work-related income. If your work-related expenses are $1,000 or less, you can claim the flat amount without itemising or keeping receipts for each item.
In practice, if you have a small amount of work-related spend each year — stationery, part of your home-office running costs, work tools — you can opt for the $1,000 standard deduction instead of saving every receipt.
If your actual work-related expenses exceed $1,000, you can still claim the higher actual amount under the existing rules, but you’ll need to keep evidence and records.
Important: charitable donations, union fees, professional association memberships and other non-work-related deductions can still be claimed separately, on top of the $1,000 standard deduction.
3. Working Australians Tax Offset: up to $250
The Government will also introduce a Working Australians Tax Offset (WATO) from the 2028 income year.
WATO provides eligible Australian taxpayers with work income a permanent tax offset of up to $250 per year.
It’s worth remembering that a tax offset is not a cash payment — it reduces the tax payable at lodgement. If your tax bill is already low, the actual benefit will vary by individual circumstance.
Eligible work income for WATO includes salary and wages, as well as sole trader business income.
The policy direction is to let Australians with work income keep more of what they earn.
4. Medicare Levy low-income thresholds increase
From 1 July 2025, Medicare Levy low-income thresholds rise by 2.9%.
The new thresholds are:
- Singles: from $27,222 to $28,011
- Families: from $45,907 to $47,238
- Single seniors and pensioners: from $43,020 to $44,268
- Seniors and pensioners families: from $59,886 to $61,623
- Additional family threshold per dependent child or student: from $4,216 to $4,338
This means some lower-income individuals and families will continue to pay no Medicare Levy, or only the shading-in portion.
5. Private health insurance rebate changes
The Budget also proposes removing the age-based uplift in the Private Health Insurance Rebate from 1 April 2027.
Currently, members aged 65 and over receive a higher PHI rebate. Once the age-based uplift is removed, the net rebate for these members will be lower, which can effectively raise the price they pay for cover.
If you’re already over 65, or close to it, and hold private health cover, it’s worth reviewing your policy and premium before April 2027.
6. What does this mean for you?
For most working Australians the practical effects over the next few income years are likely to be:
- Lower personal income tax — particularly on the $18,201 to $45,000 bracket as it steps down from 16% to 14%.
- Simpler work-related claims for many — the $1,000 standard deduction means less paperwork if your expenses are small.
- WATO further reduces tax for those with work income.
- Continued Medicare Levy protection for lower-income individuals and families.
On the other hand, the removal of the PHI age-based uplift may affect some older Australians from 2027.
FAQs
Q: Does the $1,000 standard deduction apply to everyone?
A: It applies to Australian tax residents with work-related income. Note it’s a cap, not an automatic $1,000. If your real expenses are below $1,000 you can claim the flat $1,000 without keeping receipts. If your expenses exceed $1,000 you can still claim the higher actual amount under current rules — but you’ll need to keep evidence.
Q: Is WATO the same as LITO or LMITO?
A: No. WATO is a new permanent tax offset starting in the 2028 income year, specifically for taxpayers with work income, up to $250. LITO is the existing low-income tax offset; LMITO was discontinued after the 2022 income year. WATO is a separate, new measure.
Q: How will the higher Medicare Levy thresholds affect me?
A: If your taxable income is near the new threshold you may pay no Medicare Levy at all, or pay only the shading-in portion. For singles, income up to $28,011 generally pays no levy; income between $28,011 and about $35,013 pays a shading-in amount; and the full 2% applies above roughly $35,013. The exact calculation depends on your circumstances.
Q: Will my private health insurance premium go up after the age-based uplift is removed?
A: The premium itself doesn’t change, but your government rebate may fall, so your net out-of-pocket premium can rise. Members 65 and over should review the rebate notice from their fund after 1 April 2027 and consider whether to adjust cover.
Related services
In summary
The personal tax measures in the 2026–27 Federal Budget are aimed at reducing the tax burden on working Australians and simplifying parts of the lodgement process.
These changes will not affect every taxpayer the same way. Your actual outcome depends on income, work-related expenses, family situation, private health arrangements and other deductions.
If you’re unsure how these changes will affect your return, speak to a registered tax agent before lodgement.
Disclaimer: This article is general information only and not personal tax advice. Final outcomes depend on legislation as enacted, ATO guidance and your individual circumstances.
