Understanding Australia's Tax Brackets: Stage 3 Cuts and Take-Home Pay

Australia's individual income tax is progressive: each additional dollar of taxable income is taxed at the marginal rate that applies to the band it falls into, so your average rate is always lower than your top rate. The revised Stage 3 tax cuts, which took effect on 1 July 2024, lowered the bottom and middle rates and lifted the thresholds for the 37% and 45% bands. From 1 July 2026, the 16% rate was reduced further to 15%, giving a second round of relief to the lowest-paid workers.

The 2026-27 individual tax brackets

These are the resident marginal rates for the 2026-27 financial year. They exclude the 2% Medicare levy, which is applied separately, and the Low Income Tax Offset (LITO) and the new Working Australians Tax Offset (WATO), both of which reduce the effective tax payable:

• $0 – $18,200: Nil (tax-free threshold)
• $18,201 – $45,000: 15c for each $1 over $18,200
• $45,001 – $135,000: $4,020 plus 30c for each $1 over $45,000
• $135,001 – $190,000: $31,020 plus 37c for each $1 over $135,000
• $190,001 and above: $51,370 plus 45c for each $1 over $190,000

What the changes mean in practice

The earlier Stage 3 cut lowered the 32.5% middle band to 30% and lifted the 37% threshold from $120,000 to $135,000, and the 45% threshold from $180,000 to $190,000. The 1 July 2026 change then lowered the lowest band from 16% to 15%. The net effect across the income scale is a meaningful increase in take-home pay — larger in dollar terms for higher earners, but a larger proportional benefit for low and middle earners who keep more of every extra dollar earned.

The Medicare levy on top

Most taxpayers also pay a 2% Medicare levy on taxable income, subject to low-income thresholds. The Medicare Levy Surcharge of 1% to 1.5% applies from 2026-27 to singles earning more than $105,000 and families more than $210,000 without appropriate private patient hospital cover. For some high earners, taking out compliant cover is cheaper than paying the surcharge — and the cover is the asset.

Maximising your take-home position

While lower marginal rates boost every pay packet, the effective tax you pay can be reduced further with proactive planning: salary sacrificing into super (taxed at 15% rather than up to 45%), a novated lease on an electric vehicle, legitimate work deductions, and claiming the offsets you are entitled to. Each reduces taxable income directly, and the benefit compounds because it sits in the band where your marginal rate is highest.

Planning around the brackets

Because the 37% and 45% thresholds are fixed dollar amounts, the timing of a bonus, a capital gain, or a distribution can move income across a band and change the marginal rate that applies to it. Freedom Taxation models your projected taxable income through the year, identifies where a timing choice changes the band, and recommends the action — deferring a gain, bringing forward a deduction, or topping up super — that delivers the largest after-tax result within the rules.

Tax brackets reward planning: a dollar of deduction in the 45% band is worth more than twice the same deduction in the 15% band.