New Tax Cuts Explained: What the 2025 Changes Mean for You

On the 25th of March 2025, the Albanese Labor government unveiled a new round of personal income tax cuts as part of the federal budget. Things moved quickly, and just one day later, the changes passed through Parliament and officially became law.

These changes include a new round of personal income tax cuts, updated Medicare levy thresholds, and a fresh instant asset write-off for small businesses. This guide will break down what's actually changed and what it means for you.

Disclaimer: This information is for educational purposes only and is not financial advice. Tax laws are complex and subject to change.

1. New Personal Income Tax Cuts

The government is cutting the lowest income tax rate, which applies to income earned between $18,201 and $45,000, as detailed on the ATO's tax rates page.

• Current Rate: 16%
• From 1st July 2026: The rate will drop to 15%.
• From 1st July 2027: The rate will drop again to 14%.

It’s important to know that these tax cuts are permanent changes to the tax brackets, not temporary offsets or one-off bonuses. Once the rate drops, it will stay there unless a future government decides to change it again through new legislation.

Who benefits from these tax cuts?

Effectively, everyone earning more than the effective tax-free threshold (which is $22,575) will receive a tax cut.

The dollar savings are exactly the same for anyone with a taxable income of $45,000 or more, as that’s the point where the full benefit of the tax cut kicks in. If you earn less than $45,000, your savings will be smaller simply because less of your income is taxed in that bracket.

However, the key is that as a percentage of tax paid, the savings make a bigger difference to low and middle-income earners. Following several previous rounds of tax cuts, this latest change is aimed at easing the pressure just a little more for those on lower and middle incomes.

2. Increased Medicare Levy Thresholds

Most working Australians pay an extra 2% of their taxable income to help fund the public healthcare system—this is the Medicare levy. However, as the ATO explains, if you are on a low income, you may be exempt from paying it or only have to pay a reduced rate.

As part of the latest changes, the government is increasing the low-income thresholds for the Medicare levy by 4.7% for singles, families, and seniors and pensioners. This change is effective from the 1st of July 2024.

This means that over one million Australians on low incomes will continue to be exempt from paying the levy, or will pay less than they did before. This is a targeted form of cost-of-living relief designed to protect those doing it toughest from additional tax.

3. Certainty for Small Business: The Instant Asset Write-Off

There is also a welcome update for small business owners. The bill that includes the popular instant asset write-off changes has now officially become law, which provides much-needed certainty for both the 2024 and 2025 financial years.

Here are the key points from the ATO's guidance:

• Eligible small businesses can immediately deduct the full cost of assets costing less than $20,000.
• This applies to assets that are purchased and installed between the 1st of July 2024 and the 30th of June 2025.

This measure aims to support business investment and improve cash flow, especially for tradies, sole traders, and small operators who are replacing or upgrading equipment. The ATO has already updated its website with the latest details, so if you are a small business owner, it's worth checking to see if you are eligible and how this could benefit you.