2026–27 Tax Cuts and the $250 Working Australians Tax Offset
Status and effective dates — 5 September 2026 New in the May 2026 Budget: The Working Australians Tax Offset is now law (Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Royal Assent 26 June 2026) and applies from 1 July 2027. Already law before this Budget: The lowest marginal tax rate falls from 16% to 15% from 1 July 2026, then to 14% from 1 July 2027. These rate cuts were legislated in March 2025, so they were not new May 2026 Budget measures.
The 2026–27 Federal Budget brought together several tax cuts for workers, but not every cut was newly announced in May 2026.
The genuinely new personal tax measure was the Working Australians Tax Offset, usually shortened to WATO. It provides an ongoing tax offset of up to $250 from the 2027–28 income year. Separately, the first marginal income tax rate is already scheduled to fall in two steps under earlier legislation.
Here is the plain-English version of what each change means.
What happens to Australian income tax rates?
The tax-free threshold remains $18,200. The rate applying to taxable income between $18,201 and $45,000 changes as follows:
Income year | Rate from $18,201 to $45,000 | When it applies |
|---|---|---|
2025–26 | 16% | Previous income year |
2026–27 | 15% | From 1 July 2026 |
2027–28 onward | 14% | From 1 July 2027 |
The other resident individual thresholds and rates remain 30% from $45,001 to $135,000, 37% from $135,001 to $190,000 and 45% above $190,000. Medicare levy is separate.
These changes can benefit Australian resident individuals with taxable income above $18,200. Each step delivers a maximum direct saving of $268 a year compared with the previous rate.
How does the $250 Working Australians Tax Offset work?
From 2027–28, an individual qualifies only if they are an Australian resident at some time during the year and their net labour income exceeds the tax-free threshold. The non-refundable offset is the lesser of $250 and the basic income-tax liability calculated as if taxable income comprised only that net labour income.
Relevant income can include salary and wages, eligible sole-trader business income, personal services income and certain employee share scheme discounts. Investment income, and income received through a company or trust, is not labour income.
“Non-refundable” means the offset can reduce eligible tax to nil, but it cannot create a cash refund by itself, be transferred to someone else or be carried forward. The amount is limited to the relevant tax liability, so a person with only a small amount of tax payable may receive less than $250.
For workers receiving the full offset, the Government says WATO effectively lifts the tax-free threshold on work income to about $19,985. When combined with the low income tax offset, the effective threshold can be around $24,985, depending on the person’s income and circumstances.
A practical example
Sarah is an Australian resident employee earning $80,000 a year, with no other income or deductions.
In 2025–26, her basic income tax before Medicare levy and offsets is about $14,788.
In 2026–27, the 15% rate reduces that to about $14,520, a saving of $268.
In 2027–28, the 14% rate reduces basic tax to about $14,252. If Sarah qualifies for the full $250 WATO, her total reduction is about $786 compared with the 2025–26 settings.
This is a simplified illustration. Deductions, other offsets, HELP repayments, Medicare levy and investment or business income can change the final result.
What should workers do now?
There is no separate WATO application form. The offset will be calculated through the tax return once it commences, using the income reported for that year. In the meantime, workers should continue keeping accurate income and deduction records and checking that their employer withholding details are current.
If you earn income through a company, partnership or trust, do not assume it will be treated as your labour income for WATO. The legislation distinguishes direct labour income from business or investment income received through another entity.
Frequently asked questions
Is WATO a $250 payment from the Government?
No. It is a tax offset of up to $250, not a separate cost-of-living payment. It reduces eligible income tax and cannot, by itself, take tax below zero.
Will I receive WATO in my 2025–26 or 2026–27 tax return?
No. WATO starts in the 2027–28 income year, so the first claims will generally be made in tax returns lodged after 30 June 2028. The 15% marginal rate starts one year earlier, from 1 July 2026.
Are the 15% and 14% rates new 2026 Budget announcements?
No. They were legislated in March 2025, well before the May 2026 Budget. The Budget presented them alongside WATO, but only WATO was the new measure in this package.
Talk to Regans Accountants
Want to know what the rate cuts and WATO could mean for your take-home position? Talk to Regans Accountants. We can review your mix of employment, sole-trader and investment income and give you a clear, practical estimate.
General information only, current at 5 September 2026. Speak with us about your own circumstances.
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