Two Numbers That Change Your Tax Bill on July 1
Fifteen percent. That is the new marginal tax rate on every dollar you earn between $18,201 and $45,000, down from 16%, effective July 1, 2026. And $20,000—that is the instant asset write-off threshold that just became permanent for small businesses, meaning you can buy equipment, vehicles, or software up to that amount and deduct the entire cost in the year of purchase.
These two changes landed simultaneously in the 2026-27 financial year, and they interact in ways that matter if you earn a salary and also run a side business. The rate cut saves you $268 on your salary. The instant write-off can save you thousands more on your business purchases. Together, they represent the most significant tax simplification for Australian workers and sole traders in years.
This guide walks you through the exact 2026-27 tax brackets, shows you the math for three real-world profiles (a full-time employee, a sole trader, and someone with both), explains how the instant asset write-off works in practice, and flags the edge cases that trip people up.
Important
The 15% rate applies to the 2026-27 income year (July 1, 2026 to June 30, 2027). On July 1, 2027, the rate drops further to 14%. The $20,000 instant asset write-off is permanent from July 1, 2026, for businesses with aggregated turnover under $10 million. Confirm your eligibility against the ATO's instant asset write-off page before claiming.
The Complete 2026-27 Australian Resident Tax Brackets
Here is the full bracket table for Australian resident taxpayers for the 2026-27 financial year :
| Taxable Income | Marginal Rate | Tax on This Income |
|---|---|---|
| $0 - $18,200 | 0% | Nil |
| $18,201 - $45,000 | 15% | 15 cents for each $1 over $18,200 |
| $45,001 - $135,000 | 30% | $4,020 plus 30 cents for each $1 over $45,000 |
| $135,001 - $190,000 | 37% | $31,020 plus 37 cents for each $1 over $135,000 |
| $190,001 and over | 45% | $51,370 plus 45 cents for each $1 over $190,000 |
Plus the 2% Medicare Levy on your taxable income (with reductions for low-income earners).
What Changed from 2025-26?
Only one bracket moved. The second bracket ($18,201 to $45,000) dropped from 16% to 15%. Every other bracket is unchanged. The tax-free threshold remains $18,200. The 30%, 37%, and 45% rates and their thresholds are identical to 2025-26.
The $268 Saving
If you earn $45,000 or more, the entire $26,800 band from $18,201 to $45,000 is taxed at 15% instead of 16%. The saving is:
$26,800 x 1% = $268
That is the maximum benefit from the rate change. If you earn less than $45,000, your saving is smaller—it is 1% of whatever portion of your income falls in the $18,201 - $45,000 band. For example, if you earn $30,000:
($30,000 minus $18,200) x 1% = $11,800 x 1% = $118
Note
The $268 saving is before the Medicare Levy. Since the Medicare Levy is calculated on your taxable income (not your tax), the rate change does not affect your Medicare Levy. Your total saving is exactly $268 from the income tax change.
Case Study 1: Chloe, Full-Time Marketing Coordinator ($72,000 Salary)
Chloe earns $72,000 as a marketing coordinator in Melbourne. She has no side business, no investment income, and claims the standard deduction (which the ATO is proposing to set at $1,000 for work-related expenses from 2026-27).
Step 1: Calculate Taxable Income
- Gross salary: $72,000
- Less standard deduction: -$1,000
- Taxable income: $71,000
Step 2: Apply the 2026-27 Brackets
- First $18,200: 0% = $0
- $18,201 to $45,000 band width ($26,800): 15% = $4,020
- $45,001 to $71,000 band width ($26,000): 30% = $7,800
- Total income tax: $11,820
Step 3: Compare to 2025-26 (16% Rate)
- First $18,200: 0% = $0
- $18,201 to $45,000 band width ($26,800): 16% = $4,288
- $45,001 to $71,000 band width ($26,000): 30% = $7,800
- Total income tax (old): $12,088
Step 4: The Saving
- Old tax: $12,088
- New tax: $11,820
Chloe's income tax: 2025-26 vs 2026-27
- Saving: $268
Step 5: Medicare Levy
- 2% of $71,000 = $1,420 (unchanged by the rate cut)
Step 6: Take-Home Impact
- Total tax + Medicare: $11,820 plus added $1,420 = $13,240
- Net take-home: $72,000 total minus $13,240 = $58,760
- Weekly take-home (52 weeks): $1,130
- Weekly saving from the rate cut: $268 / 52 = $5.15 per week
Five dollars and fifteen cents per week. Not life-changing, but it compounds if you invest it. $5.15 per week at 7% annual return over 30 years grows to approximately $26,000.
Case Study 2: Jake, Sole Trader Electrician ($95,000 Business Income)
Jake runs his own electrical contracting business as a sole trader in Brisbane. His aggregated business turnover is $180,000 (well under the $10 million threshold). His net business income before tax is $95,000. In August 2026, he purchases a new work vehicle (ute) for $19,500 and a set of power tools for $4,200.
Step 1: Apply the Instant Asset Write-Off
Under the permanent $20,000 instant asset write-off :
- Work vehicle: $19,500 cost under $20,000 threshold—fully deductible immediately
- Power tools: $4,200 cost under $20,000 threshold—fully deductible immediately
- Total instant deduction: $23,700
Both assets cost less than $20,000 each, so both qualify for the full immediate deduction. There is no need to depreciate them over multiple years.
Tip
The $20,000 threshold applies per asset, not in total. You can buy five assets at $19,000 each and deduct all $95,000 immediately, as long as each individual asset costs less than $20,000 and is used for business purposes. The asset must be first used or installed ready for use by June 30, 2027 to claim the deduction in the 2026-27 year.
Step 2: Calculate Taxable Income
- Net business income: $95,000
- Less instant asset write-off: -$23,700
- Taxable income: $71,300
Step 3: Apply the 2026-27 Brackets
- First $18,200: 0% = $0
- $18,201 to $45,000 band width ($26,800): 15% = $4,020
- $45,001 to $71,300 band width ($26,300): 30% = $7,890
- Total income tax: $11,910
Step 4: Compare Without the Write-Off
Without the instant write-off, Jake's taxable income would be $95,000:
- First $18,200: 0% = $0
- $18,201 to $45,000 band width ($26,800): 15% = $4,020
- $45,001 to $95,000 band width ($50,000): 30% = $15,000
- Total income tax (no write-off): $19,020
Step 5: The Combined Saving
- Tax without write-off: $19,020
- Tax with write-off: $11,910
- Tax saving from instant write-off: $7,110
Jake's tax bill with and without the $20,000 write-off
That is $7,110 in immediate tax savings from purchasing $23,700 in business equipment. The effective "discount" on Jake's purchases is 30% (his marginal rate)—the government is effectively funding 30% of his new ute and tools through the tax system.
Step 6: The 15% Rate Saving
Jake also benefits from the 16% to 15% rate change on the $26,800 band:
- Saving: $26,800 x 1% = $268
Total Combined Saving
- Rate cut saving: $268
- Instant write-off saving: $7,110
- Total: $7,378
Case Study 3: Priya, Part-Time Teacher + Online Tutoring Side Hustle
Priya earns $55,000 as a part-time high school teacher in Sydney. She also runs an online tutoring business as a sole trader, earning $18,000 in net business income. In September 2026, she buys a $3,500 laptop and a $1,200 webcam-and-lighting setup for her tutoring business.
Step 1: Separate Salary and Business Income
Priya's salary and business income are combined for tax purposes, but the instant asset write-off applies only to the business portion.
- Salary income: $55,000
- Business income (before deductions): $18,000
- Instant asset write-off: -$4,700 total ($3,500 plus $1,200, both under $20,000)
- Business income (after deductions): $13,300
- Total taxable income: $55,000 + $13,300 = $68,300
Step 2: Apply the 2026-27 Brackets
- First $18,200: 0% = $0
- $18,201 to $45,000 band width ($26,800): 15% = $4,020
- $45,001 to $68,300 band width ($23,300): 30% = $6,990
- Total income tax: $11,010
Step 3: Compare Without the Write-Off
Without the write-off, taxable income would be $73,000:
- First $18,200: 0% = $0
- $18,201 to $45,000 band width ($26,800): 15% = $4,020
- $45,001 to $73,000 band width ($28,000): 30% = $8,400
- Total income tax (no write-off): $12,420
Step 4: The Savings
- Rate cut saving (on the $26,800 tax band): $268
- Instant write-off saving: $12,420 total minus $11,010 = $1,410
- Total combined saving: $1,678
Priya spent $4,700 on business equipment and got $1,410 back in tax savings—a 30% effective discount at her marginal rate. Plus the $268 rate cut saving on her salary.
The $20,000 Instant Asset Write-Off: Rules and Edge Cases
The instant asset write-off became permanent from July 1, 2026. Here are the rules:
Who Qualifies?
- Small businesses with aggregated turnover under $10 million
- Sole traders, partnerships, companies, and trusts
- You must be carrying on a business (not just earning salary)
What Qualifies?
- Depreciating assets costing less than $20,000 each
- New and second-hand assets
- Vehicles, equipment, tools, furniture, computers, software
- The business portion of the cost (if you use the asset partly for private purposes)
What Does NOT Qualify?
- Assets costing $20,000 or more (these go into the general small business pool at 15% or 30% depreciation)
- Buildings and structural improvements
- Assets allocated to a low-value pool under the general depreciation rules
- Horticultural plants (separate rules apply)
Timing Rules
- The asset must be first used or installed ready for use between July 1, 2026 and June 30, 2027 to claim the deduction in the 2026-27 year
- You claim the deduction in the year the asset is first used, not the year you order or pay for it
- If you buy an asset in June 2027 but do not use it until August 2027, the deduction falls in the 2027-28 year
Caution
The $20,000 threshold is per asset, not a total annual cap. However, the ATO scrutinizes arrangements where a single asset is artificially split into multiple sub-$20,000 purchases to claim multiple instant deductions. If you buy a $35,000 machine and the supplier invoices it as two $17,500 items, the ATO will treat it as a single $35,000 asset and deny the instant write-off.
The Three-Year Rate Trajectory: 16% to 15% to 14%
The 2026-27 rate cut is the first step in a legislated three-year reduction :
| Financial Year | Rate on $18,201 - $45,000 | Maximum Saving vs 2025-26 |
|---|---|---|
| 2025-26 (current) | 16% | Baseline |
| 2026-27 | 15% | $268 |
| 2027-28 and beyond | 14% | $536 |
Maximum annual saving from the rate trajectory
From July 1, 2027, the rate drops to 14%, doubling the saving to $536 per year. The 14% rate is permanent—there is no scheduled further reduction beyond 14%.
The government also announced a $250 Working Australians Tax Offset from 2027-28, providing an additional annual tax cut for over 13 million Australian workers.
How This Interacts with Other 2026-27 Changes
The 15% rate cut and the $20,000 write-off do not exist in isolation. Two other changes affect your 2026-27 tax bill:
The $1,000 Standard Deduction
From 2026-27, the ATO is implementing a $1,000 standard deduction for work-related expenses, replacing the old $300 no-receipt threshold. If your actual work expenses are under $1,000, you claim the flat $1,000. If they exceed $1,000, you can still claim actual expenses with receipts. For a detailed breakdown, see our guide on Australia's $1,000 Instant Tax Deduction.
The Medicare Levy
The 2% Medicare Levy is unchanged. It applies to your taxable income after deductions. Low-income earners may qualify for a reduction or exemption.
The Bottom Line
The 15% rate cut is modest—$268 a year for most taxpayers. But the permanent $20,000 instant asset write-off is a major advantage for sole traders and small business owners. If you have been putting off buying that work vehicle, upgrading your tools, or investing in business software, the 2026-27 year is the time to act. The instant deduction at your marginal rate effectively gives you a 15% to 45% government-funded discount on every qualifying purchase. Combine that with the rate cut on your salary income, and the 2026-27 tax year offers real, tangible savings for Australian workers and business owners alike. Use our Stage 3 Tax Cut 15% Bracket Calculator 2026 to model your exact combined savings. For a broader look at Australian tax planning, see our Australia Working Holiday Tax Guide.
