Tax Cuts Are Coming — But Are You Still Paying More Than You Should?

The only sliver of a silver lining in this Federal Budget is that the lower marginal tax rates were cut, which will equally benefit those still working through to those that are semi-retired and working part-time.

The 16 per cent tax rate on income of $18,201–$45,000 drops to 15 per cent from 1 July 2026 and 14 per cent from 1 July 2027, saving up to $268 a year in 2026–27 and $536 a year from 2027–28 for anyone on a wage or salary.

In addition, the new $1,000 instant tax deduction, where taxpayers will not be required to provide receipts, will save some 6 million Australian workers a further $205 a year. It all adds up particularly for those on a low income.

Needless to say, these relatively small tax cuts will do little to offset the impact of ‘bracket creep’, where the more workers earn, the more tax they will pay as a percentage of their wages as higher tax rates kick in.

So significant is the impact of bracket creep, that this one factor alone will add a massive $18 billion to the Government’s coffers simply as a result of more Australians earning more. That’s $18 billion Australians won’t have to spend.

Salary sacrifice and concessional super contributions remain the single most effective tool to manage bracket creep for pre-retirees and to reduce your overall tax bill, so make sure you talk to your tax agent before June 30 if you are thinking of contributing to super.

Remember you have two choices in making super contributions. You can make non-concessional contributions up to $120,000 this financial year, claim no tax deductions for it but then, pay no contributions tax of 15 per cent on it either.

Alternatively, you can make concessional contributions of up to $30,000 and claim it as a tax deduction in order to attempt to reduce you overall tax bill.

However, once you do, the Government will charge a 15 per cent contribution tax on those contributions so you need the advice of a tax agent to determine whether you will in fact reduce your overall tax bill.

Also remember that from July 1, 2026, the amount you can contribute as a concessional contribution will rise to $32,500 a year while the non-concessional tax rate will rise to $130,000 a year or to $390,000 under the 3-year bring forward rule.

From next financial year, the federal Government will introduce pay-day super which means that every pay day, your employer will need to contribute to your super at the same time as paying you making it much easier for you to keep track of your super contributions.

Importantly, remember that superannuation is one of the few ‘tax perks’ left to all Australians so make sure you take full advantage of it and contribute as much as you can afford while remaining inside the limits, particularly as you near retirement.