On Tuesday, 25 March 2025, Treasurer Jim Chalmers handed down the 2025–26 Federal Budget, his 4th Budget. The major personal tax-related measures announced in the Budget include the following.
Personal Income Tax Cuts from 2026 and 2027
The Government has proposed to cut the personal income tax rate for the income threshold ($18,200 – $45,000) from 16% to 15% (from 1 July 2026) and 14% (from 1 July 2027). Under the proposed changes, every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, rising to $536 from 1 July 2027.
The Government said the proposed tax cuts will provide “modest but meaningful” cost-of-living relief and “return bracket creep” by lowering average tax rates for all taxpayers, especially for low- and middle-income earners.
Example: How the Tax Cuts Impact Households
Isha and Cameron have 2 children and are working full-time. Isha is a registered nurse and Cameron is a truck driver, both earning $80,000 per year. Under the Government’s proposed tax cuts, Isha and Cameron will collectively pay $536 less tax in 2026–27, and $1,072 less in 2027–28. Combined with the existing Stage 3 tax cuts, Isha and Cameron will collectively pay $4,430 less tax in 2027–28 (compared to the 2023–24 tax settings).
The Government’s proposal to reduce the resident income tax rates is not expected to flow through and impact the income tax rates for foreign residents. This is because foreign residents are not entitled to the tax-free threshold or the first income tax threshold.
Low Income Tax Offset Remains Unchanged
No changes were made to the Low Income Tax Offset (LITO) in the 2025–26 Budget. The maximum amount of the LITO is $700. The maximum LITO reduces at a rate of 5 cents per dollar for taxable income above $37,500 and reduces at a rate of 1.5 cents per dollar for taxable income above $45,000. It is not payable for taxable income of $66,667 or more.
Medicare Levy Low-Income Thresholds Increased
For the 2024–25 income year, the Medicare levy low-income threshold for singles has been increased to $27,222 (up from $26,000 for 2023–24). For couples with no children, the family income threshold is $45,907 (up from $43,846). The additional amount of threshold for each dependent child or student is $4,216 (up from $4,027).
For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold is $43,020 (up from $41,089). The family threshold for seniors and pensioners is $59,886 (up from $57,198), plus $4,216 for each dependent child or student.
The increased thresholds will apply to the 2024–25 and later income years. Note that legislation is required to amend the thresholds.
Energy Bill Rebate Extended for 2025
The Government will extend its energy bill rebate until the end of 2025 by providing a further two instalments of $75 for households and small businesses. From 1 July 2025, households and around one million small businesses will see another $150 in rebates “automatically applied to their electricity bills in quarterly instalments, on top of the previous rebates already being rolled out”.
Help to Buy Scheme Expanded
The Government will increase its equity investment in the Help to Buy scheme to $6.3bn (up $800m) and increase the income and price caps. Under this shared equity loan scheme, the Commonwealth will provide an equity contribution of up to 40% of the purchase price to assist up to 40,000 eligible first home buyers to purchase a new or existing home.
The Government will increase the income cap from $90,000 to $100,000 for individuals, and from $120,000 to $160,000 for joint applicants and single parents. Property price caps for eligible homes will also increase and be linked with the average house price in each State and Territory.
For example, the NSW capital city and regional centre price cap will be set at $1.3m (rather than the median house price of approximately $1.5m) to ensure prices remain within borrowing capacity. The cap will be $800,000 for NSW outside capital cities and regional centres.
The scheme is legislated but will not commence until Program Directions are in force. Applications are expected to open later in 2025.
Early Childhood Education Subsidy Changes
The Government will provide $4.5m over four years from 2025–26 to Services Australia to make system changes to support the Child Care Subsidy Three Day Guarantee, replacing the current activity test. This will ensure families are entitled to at least three days a week of subsidised early childhood education and care, starting January 2026.
Beer Excise Indexation Frozen
The Government will pause indexation on draught beer excise and equivalent customs duty rates for two years from August 2025. As a result, indexation due in August 2025, February 2026, August 2026, and February 2027 will not occur. Indexation will resume in August 2027.
Ban on Foreign Ownership of Existing Dwellings
The Government confirmed the ban on foreign persons (including temporary residents and foreign-owned companies) purchasing established dwellings for two years from 1 April 2025, unless an exception applies. Exceptions include investments that significantly increase housing supply or provide housing for workers.
Land Banking Enforcement Measures
To curb land banking, the Government will ensure foreign investors use vacant land for residential or commercial development within reasonable timeframes. This aims to stop investors from holding land purely for capital gain without using it.
Reduction of HELP and Student Loan Debts
- The Government confirmed it will reduce Higher Education Loan Program (HELP) and other student debts for over 3 million Australians by around $19bn. This includes:
A 20% reduction to outstanding debts before indexation on 1 June 2025 (subject to legislation), cutting $16bn in debt - Reform of the repayment system to introduce marginal rates and raise income thresholds for repayment, starting 1 July 2025
- A previously legislated cap on HELP indexation (based on the lower of CPI or WPI), already reducing debt by $3bn and backdated to 1 June 2023