Living costs are still high, so knowing exactly what relief applies in 2025–26 can help you plan your budget and tax return.
This guide explains the proposed Cost-of-Living Tax Offset, current tax brackets, how the Low Income Tax Offset (LITO) works, and what to know about the Medicare levy and Medicare Levy Surcharge (MLS)—all in clear, simple English.
What Is The Cost-Of-Living Tax Offset?
The Cost-of-Living Tax Offset (CLTO) is a proposal aimed at easing pressure in 2025–26.
If passed, it would be a one-off, non-refundable offset of up to $1,200 for residents with taxable income up to $144,000. Proposed bands:
- $37,000 or less: up to $265
- $37,001–$48,000: $265 + 8.5c per $1 over $37,000
- $48,001–$104,000: $1,200
- $104,001–$144,000: $1,200 − 3c per $1 over $104,000
It would apply from 1 July 2025 if legislated. Until then, treat it as not guaranteed.
2025–26 Tax Rates At A Glance
Resident tax scales for 2025–26 remain the same as the post-2024 reforms:
- $0–$18,200: 0%
- $18,201–$45,000: 16%
- $45,001–$135,000: 30%
- $135,001–$190,000: 37%
- $190,001 and above: 45%
These rates apply alongside the Medicare levy (generally 2%) unless you’re under relevant low-income thresholds or otherwise exempt.
Low Income Tax Offset (LITO) And Who It Helps
LITO remains up to $700:
- Full $700 up to $37,500 taxable income.
- Phases out at 5c per $1 from $37,501–$45,000.
- Then 1.5c per $1 from $45,001–$66,667, after which it’s nil.
LITO reduces tax payable (it doesn’t create a refund by itself) and is applied automatically when you lodge.
Medicare Levy Thresholds And Surcharge
The Medicare levy uses indexed low-income thresholds so lower-income taxpayers pay reduced or no levy. Above those thresholds, the full 2% generally applies.
If you’re on a higher income without eligible private hospital cover, the Medicare Levy Surcharge (MLS)—1% to 1.5%—may apply once your income exceeds the relevant single or family tiers.
Holding eligible hospital cover can avoid the MLS.
Quick Reference (2025–26)
| Item | 2025–26 Setting | Who Benefits | Notes |
|---|---|---|---|
| Resident tax brackets | 0%, 16%, 30%, 37%, 45% | Most taxpayers | Brackets unchanged from 1 Jul 2024 reforms. |
| LITO | Up to $700 | Low-to-middle incomes | Phases out from $37,500; ends at $66,667. |
| Medicare levy | Generally 2% | Broadly applicable | Low-income thresholds can reduce/waive levy. |
| MLS (no hospital cover) | 1%–1.5% by tier | Higher incomes | Avoidable with eligible hospital cover. |
| Cost-of-Living Tax Offset (proposed) | Up to $1,200 | Incomes up to $144,000 | Proposal only for 2025–26; not yet law. |
How To Maximise Your 2025–26 Relief
- Check Your Income Band: The wider 30% bracket (to $135,000) lowers marginal rates for many compared with past years.
- Leverage LITO: If your income sits around the phase-out ranges, smart timing of deductions and investment income can preserve more of the LITO.
- Review Health Cover: If you’re near MLS thresholds, basic hospital cover can be cheaper than paying the surcharge.
- Plan For CLTO As A Bonus: Budget without the CLTO; if Parliament passes it, treat it as upside.
For 2025–26, the real, confirmed relief is the post-2024 tax bracket design plus LITO and Medicare levy settings that together lift take-home pay—especially for low- and middle-income earners.
The headline Cost-of-Living Tax Offset remains proposed.
Build your plan on what’s already in force, keep an eye on Parliament, and use LITO, hospital cover, and careful income timing to get the most from the rules.
FAQs
Is The $1,200 Cost-Of-Living Tax Offset Confirmed?
No. It is a proposal for 2025–26. It will only apply if legislation passes.
What Are The 2025–26 Resident Tax Brackets?
0% to $18,200, 16% to $45,000, 30% to $135,000, 37% to $190,000, and 45% above that (plus any Medicare levy).
How Does LITO Reduce My Tax?
LITO (up to $700) directly reduces tax payable. It phases out between $37,500 and $66,667, and is applied automatically when you lodge.
