Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2022-2023-2024-2025
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (MORE COST OF LIVING RELIEF)
BILL 2025
EXPLANATORY MEMORANDUM
(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)
Table of Contents
Glossary ...................................................................................... ii
General outline and financial impact ...................................................... 1
New tax cuts for every Australian taxpayer .................. 4
Increasing the Medicare levy low-income thresholds... 7
Statement of Compatibility with Human Rights .......... 13
Glossary
Glossary
This Explanatory Memorandum uses the following abbreviations and acronyms.
Abbreviation Definition
Bill Treasury Laws Amendment (More Cost
of Living Relief) Bill 2025
CPI Consumer Price Index
Rates Act Income Tax Rates Act 1986
SAPTO Senior Australian and Pensioner Tax
Offset
Treasury Laws Amendment (More Cost of Living Relief) Bill 2025
General outline and financial impact
Background
The amendments contained in the Treasury Laws Amendment (More Cost of Living
Relief) Bill 2025 will deliver further cost-of-living relief.
The Government is delivering new tax cuts to every Australian taxpayer from
1 July 2026, in addition to the first round of tax cuts that have been rolling out since
1 July 2024.
The Government is also increasing the Medicare levy low-income thresholds to ensure
Australians on lower incomes will continue to be exempt from paying the Medicare
levy or pay a reduced rate.
Schedule 1 - New tax cuts for every Australian
taxpayer
Outline
The Government is delivering new tax cuts to every Australian taxpayer from
1 July 2026. The new tax cuts will provide more cost-of-living relief, return bracket
creep and boost labour supply.
These are in addition to the Government's first round of tax cuts for every taxpayer
which took effect from 1 July 2024, for which legislation received Royal Assent on
5 March 2024.
The amendments to the Rates Act in Schedule 1 to the Bill reduce the 16 per cent
personal income tax rate that applies to Australian resident taxpayers to 15 per cent for
the 2026-27 income year and to 14 per cent for the 2027-28 income year and later
income years.
Date of effect
Schedule 1 to the Bill commences the day after Royal Assent and applies in two stages,
firstly to the 2026-27 income year and then to the 2027-28 income year and later
income years.
Proposal announced
Schedule 1 to the Bill implements the 'Personal Income Tax - new tax cuts for every
Australian taxpayer' measure in the 2025-26 Budget.
1
General outline and financial impact
Financial impact
Schedule 1 to the Bill is estimated to reduce receipts by $17.1 billion over the forward
estimates period.
All figures in this table represent amounts in $m.
2024-25 2025-26 2026-27 2027-28 2028-29
- - -3,000 -6,700 -7,400
Human rights implications
Schedule 1 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 3.
Compliance cost impact
This measure is expected to have a minor regulatory impact.
Schedule 2 - Increasing the Medicare levy
low-income thresholds
Outline
The Government is increasing the Medicare levy low-income thresholds to ensure
Australians on lower incomes will continue to be exempt from paying the Medicare
levy or pay a reduced rate.
Schedule 2 to the Bill amends the Medicare Levy Act 1986 and the A New Tax System
(Medicare Levy Surcharge -- Fringe Benefits) Act 1999 to increase:
• the Medicare levy low-income thresholds for individuals and families (along
with the dependent child/student component of the family threshold) in line
with movements in the consumer price index (CPI);
• the Medicare levy low-income thresholds for individuals and families eligible
for the Senior Australian and Pensioner Tax Offset (SAPTO) (along with the
dependent child/student component of the family threshold), in line with
movements in the CPI; and
• the surcharge low-income threshold in line with movements in the CPI.
Date of effect
Schedule 2 to the Bill applies to the 2024-25 income year and later income years.
2
Treasury Laws Amendment (More Cost of Living Relief) Bill 2025
Proposal announced
Schedule 2 to the Bill implements the Personal Income Tax - increasing the Medicare
levy low-income thresholds measure announced in the 2025-26 Budget.
Financial impact
Schedule 2 to the Bill is estimated to decrease tax receipts by $648 million over the
forward estimates period.
All figures in this table represent amounts in $m.
2024 - 25 2025 - 26 2026 - 27 2027 - 28 2028 - 29
- -207.0 -152.0 -145.0 -144.0
Human rights implications
Schedule 2 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 3.
Compliance cost impact
Schedule 2 to the Bill is expected to have a low impact on compliance costs.
3
New tax cuts for every
Australian taxpayer
Table of Contents:
Outline of chapter .................................................................................. 4
Context of amendments ......................................................................... 4
Summary of new law.............................................................................. 5
Comparison of key features of new law and current law ........................ 5
Detailed explanation of new law ............................................................ 5
Consequential amendments .................................................................. 6
Commencement, application, and transitional provisions ...................... 6
Outline of chapter
1.1 The Government is delivering new tax cuts to every Australian taxpayer from
1 July 2026. The new tax cuts will provide more cost-of-living relief, return
bracket creep and boost labour supply.
1.2 The amendments to the Rates Act in Schedule 1 to the Bill reduce the
16 per cent personal income tax rate that applies to Australian resident
taxpayers to 15 per cent for the 2026-27 income year and to 14 per cent for the
2027-28 income year and later income years. The amendments deliver tax cuts
for all Australian taxpayers.
Context of amendments
1.3 An individual's liability to pay income tax in Australia on an amount of
taxable income is calculated by reference to various marginal tax rates and
thresholds.
1.4 Section 12 of the Rates Act provides that individuals and other entities pay
income tax at rates set out in Schedule 7 to that Act, unless specific rules apply
elsewhere in the Act. Schedule 7 sets out the general rates of income tax that
apply to resident and non-resident individual taxpayers.
4
Treasury Laws Amendment (More Cost of Living Relief) Bill 2025
1.5 For the 2024-25 income year a marginal tax rate of 16 per cent applies to
ordinary taxable income that exceeds the tax-free threshold of $18,200 for
resident individual taxpayers. Where the ordinary taxable income of a resident
individual exceeds $45,000 higher marginal tax rates apply.
Summary of new law
1.6 The amendments to the Rates Act reduce the 16 per cent personal income tax
rate for resident individuals in two stages. The first reduction is to 15 per cent
for the 2026-27 income year and the second reduction is to 14 per cent for the
2027-28 income year and later income years.
Comparison of key features of new law and
current law
Table 1.1 Comparison of new law and current law
New law Current law
For the 2026-27 income year the rate of For 2024-25 and later income years the rate
income tax on the amount of the taxable of income tax on the amount of the taxable
income of a resident individual taxpayer income of a resident individual taxpayer that
that exceeds $18,200 but does not exceed exceeds $18,200 but does not exceed
$45,000 is 15 per cent. $45,000 is 16 per cent.
For 2027-28 and later income years the rate
of income tax on the amount of the taxable
income of a resident individual taxpayer
that exceeds $18,200 but does not exceed
$45,000 is 14 per cent.
Detailed explanation of new law
1.7 The amendments in Schedule 1 to the Bill reduce the 16 per cent personal
income tax marginal rate for resident individuals in two stages. The first
reduction occurs in the 2026-27 income year with the rate being reduced to
15 per cent.
[Schedule 1 to the Bill, item 2, table in clause 1 of Part I of Schedule 7]
1.8 In the second stage the rate is further reduced to 14 per cent for the
2027-28 income year and later years.
[Schedule 1 to the Bill, item 2, table in clause 1 of Part I of Schedule 7]
5
New tax cuts for every Australian taxpayer
1.9 The amendments in Schedule 1 to the Bill do not affect the personal income
tax marginal rates that apply to non-resident individual taxpayers or working
holiday makers.
Consequential amendments
1.10 The amendments in Schedule 1 to the Bill include a consequential amendment
to the heading for the existing table of resident taxpayer personal income tax
rates. The heading is updated as the existing table applies only to the 2024-25
and 2025-26 income years with new tables added for the revised rates for later
income years.
[Schedule 1 to the Bill, item 1, table in clause 1 of Part I of Schedule 7]
Commencement, application, and transitional
provisions
1.11 Schedule 1 to the Bill commences the day after Royal Assent.
1.12 The amendments provide the income tax rate reductions in two stages. The
first reduction applies to the 2026-27 income year and the second reduction
applies to the 2027-28 income year and later income years.
[Schedule 1 to the Bill, item 2, tables in clause 1 of Part I of Schedule 7]
6
Increasing the Medicare
levy low-income thresholds
Table of Contents:
Outline of chapter .................................................................................. 7
Context of amendments ......................................................................... 8
Medicare levy low-income thresholds.............................................. 8
Medicare levy surcharge low-income threshold .............................. 8
Comparison of key features of new law and current law ........................ 8
Detailed explanation of new law ............................................................ 9
Phase-in limits ............................................................................... 10
Medicare levy surcharge low-income threshold ............................ 12
Commencement, application, and transitional provisions .................... 12
Outline of chapter
2.1 The Government is increasing the Medicare levy low-income thresholds to
ensure Australians on lower incomes will continue to be exempt from paying
the Medicare levy or pay a reduced rate.
2.2 Schedule 2 to the Bill amends the Medicare Levy Act 1986 and the A New Tax
System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase:
• the Medicare levy low-income thresholds for individuals and families
(along with the dependent child/student component of the family
threshold) in line with movements in the CPI;
• the Medicare levy low-income thresholds for individuals and families
eligible for SAPTO (along with the dependent child/student
component of the family threshold), in line with movements in the
CPI; and
• the surcharge low-income threshold in line with movements in the CPI.
7
Increasing the Medicare levy low-income thresholds
Context of amendments
Medicare levy low-income thresholds
2.3 The Medicare Levy Act 1986 provides that no Medicare levy is payable by
low-income individuals and families where their taxable income or combined
family taxable income does not exceed the stated threshold amounts.
2.4 The Medicare levy phases in at a rate of 10 cents in the dollar where the
taxable income or combined family taxable income exceeds the stated
threshold amounts.
Medicare levy surcharge low-income threshold
2.5 A surcharge of between one and one and a half per cent applies on taxable
income in certain cases where taxpayers do not have appropriate private patient
hospital cover (sections 8B and 8G of the Medicare Levy Act 1986). The
surcharge also applies to reportable fringe benefits in certain cases where
taxpayers do not have appropriate private hospital cover (sections 12 to 16 of
the A New Tax System (Medicare Levy Surcharge -- Fringe Benefits) Act
1999).
2.6 A family member who otherwise would be liable for the surcharge is not
required to pay the surcharge where the total of that person's income for
surcharge purposes does not exceed the individual low-income threshold
amount. Unlike the Medicare levy, there is no phase-in of the surcharge above
the threshold amount.
Comparison of key features of new law and
current law
Table 2.1 Comparison of new law and current law
New law Current law
Medicare levy low-income thresholds
The individual income threshold for the The individual income threshold for the
2024-25 income year is $27,222. 2023-24 income year is $26,000.
The income threshold for individual The income threshold for individual
taxpayers eligible for the SAPTO for the taxpayers eligible for the SAPTO for the
2024-25 income year is $43,020. 2023-24 income year is $41,089.
8
Treasury Laws Amendment (More Cost of Living Relief) Bill 2025
New law Current law
The family income threshold for the The family income threshold for the 2023-24
2024-25 income year is $45,907. income year is $43,846.
The income threshold for families eligible The income threshold for families eligible
for the SAPTO for the 2024-25 income for the SAPTO for the 2023-24 income year
year is $59,886. is $57,198.
The child-student component of the income The child-student component of the income
threshold for families (whether eligible for threshold for families (whether eligible for
SAPTO or not) for the 2024-25 income SAPTO or not) for the 2023-24 income year
year is $4,216. is $4,027.
Phase-in limit
The individual phase-in limit for the The individual phase-in limit for the 2023-24
2024-25 income year is $34,027. income year is $32,500.
The phase-in limit for individual taxpayers The phase-in limit for individual taxpayers
eligible for the SAPTO for the 2024-25 eligible for the SAPTO for the 2023-24
income year is $53,775. income year is $51,361.
The phase-in limit for families for the The phase-in limit for families for the
2024-25 income year is $57,383. 2023-24 income year is $54,807.
The phase in limit for families eligible for The phase in limit for families eligible for
the SAPTO for the 2024-25 income year is the SAPTO for the 2023-24 income year is
$74,857. $71,497.
Detailed explanation of new law
2.7 Schedule 2 to the Bill increases the low-income threshold for individuals and
families (including the dependent child-student component of the family
threshold) in line with annual movements in the CPI.
2.8 Section 7 of the Medicare Levy Act 1986 states that no levy is payable where a
taxpayer has a taxable income at or below the applicable threshold amount as
specified in subsection 3(1) of the Medicare Levy Act 1986.
2.9 The individual threshold amount (specified in paragraph (c) of the definition of
the 'threshold amount' in subsection 3(1) of the Medicare Levy Act 1986)
increases from $26,000 to $27,222.
[Schedule 2 to the Bill, item 5, paragraph (c) of the definition of 'threshold
amount' in subsection 3(1) of the Medicare Levy Act 1986]
9
Increasing the Medicare levy low-income thresholds
2.10 The level of the 'family income threshold' referred to in subsections 8(5), 8(6)
and 8(7) of the Medicare Levy Act 1986 increases from $43,846 to $45,907.
For each dependent child or student, the family income threshold increases by
a further $4,216, instead of the previous amount of $4,027.
[Schedule 2 to the Bill, items 6, 7 and 8, the definition of 'family income
threshold' in subsection 8(5), and subsections 8(6) and (7) of the Medicare
Levy Act 1986]
2.11 Schedule 2 to the Bill also increases the threshold amount for individual
taxpayers eligible for the SAPTO for the 2024-25 income year.
2.12 The threshold amount for individual taxpayers eligible for the SAPTO
(specified in paragraph (a) of the definition of the 'threshold amount' in
subsection 3(1) of the Medicare Levy Act 1986) increases from $41,089 to
$43,020.
[Schedule 2 to the Bill, item 4, paragraph (a) of the definition of 'threshold
amount' in subsection 3(1) of the Medicare Levy Act 1986]
2.13 The threshold amount for families eligible for SAPTO increases from $57,198
to $59,886. For each dependent child or student, the income threshold
increases by a further $4,216, instead of the previous figure of $4,027.
[Schedule 2 to the Bill, item 9, subsection 8(7) of the Medicare Levy Act
1986]
Phase-in limits
2.14 Section 7 of the Medicare Levy Act 1986 also provides that the Medicare levy
applies at a reduced rate to taxpayers with taxable incomes above the threshold
amount but not more than the 'phase-in limit' specified in subsection 3(1) of
the Medicare Levy Act 1986. The rate of Medicare levy payable in these
circumstances is limited to 10 per cent of the excess over the threshold amount
that is relevant to the particular person.
2.15 The phase-in limit for individuals (specified in paragraph (c) of the definition
of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986) increases
from $32,500 to $34,027.
[Schedule 2 to the Bill, item 3, paragraph (c) of the definition of 'phase-in
limit' in subsection 3(1) of the Medicare Levy Act 1986]
2.16 The phase-in limit for individual taxpayers eligible for SAPTO (specified in
paragraph (a) of the definition of 'phase-in limit' in subsection 3(1) of the
Medicare Levy Act 1986) increases from $51,361 to $53,775.
[Schedule 2 to the Bill, item 2, paragraph (a) of the definition of 'phase-in
limit' in subsection 3(1) of the Medicare Levy Act 1986]
2.17 There is no phase-in limit for families in the Medicare Levy Act 1986, as the
limit changes with the number of dependants. Instead, subsection 8(2) of the
Medicare Levy Act 1986 contains a formula that limits the levy payable by
10
Treasury Laws Amendment (More Cost of Living Relief) Bill 2025
persons with families to 10 per cent of the amount of family income that
exceeds their family income threshold.
2.18 The increased threshold amounts and phase-in ranges for the 2024-25 income
year are as shown in Table 2.2.
Table 2.2 2024-25 Medicare levy low-income thresholds amounts and
phasing-in ranges
Category of No levy payable Reduced levy in Ordinary rate of levy
taxpayer in 2024-25 if 2024-25 (if taxable payable in 2024-25
taxable income or income or family where taxable
family income income is within income or family
does not exceed range (inclusive) income is equal to or
(figure for 2023- exceeds (figure for
24) 2023-24)
Individual $27,222 ($26,000) $27,223-$34,027 $34,028 ($32,501)
taxpayer
Individual $43,020 ($41,089) $43,021-$53,775 $53,776 ($51,362)
taxpayers
eligible for the
SAPTO
Families $59,886 ($57,198) $59,887-$74,857 $74,858 ($71,498)
eligible for the
SAPTO
Families not (family income) (family income) (family income)
eligible for the
SAPTO with
the following
number of
children and/or
students
0 $45,907 ($43,846) $45,908-$57,383 $57,384 ($54,808)
1 $50,123 ($47,873) $50,124-$62,653 $62,654 ($59,842)
2 $54,339 ($51,900) $54,340-$67,923 $67,924 ($64,876)
3 $58,555 ($55,927) $58,556-$73,193 $73,194 ($69,910)
4 $62,771 ($59,954) $62,772-$78,463 $78,464 ($74,944)
5 $66,987 ($63,981) $66,988-$83,733 $83,734 ($79,978)
11
Increasing the Medicare levy low-income thresholds
Medicare levy surcharge low-income threshold
2.19 References to the individual low-income threshold amount of $26,000 in the
surcharge provisions (in sections 8D and 8G of the Medicare Levy Act 1986) in
respect of the surcharge payable on taxable income for a person who is married
(or both married and a beneficiary of a trust) are also increased to $27,222.
[Schedule 2 to the Bill, items 10 to 13, paragraphs 8D(3)(c) and 8G(2)(c) and
subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii) of the Medicare Levy Act 1986]
2.20 References to the individual low-income threshold amount of $26,000 in the
surcharge provisions (in sections 15 and 16 of the A New Tax System
(Medicare Levy Surcharge -- Fringe Benefits) Act 1999) in respect of the
surcharge on reportable fringe benefits are also increased to $27,222.
[Schedule 2 to the Bill, item 1, paragraphs 15(1)(c) and 16(2)(c) of the A
New Tax System (Medicare Levy Surcharge -- Fringe Benefits) Act 1999]
Commencement, application, and transitional
provisions
2.21 Schedule 2 to the Bill commences the day after Royal Assent.
2.22 The amendments apply to assessments for the 2024-25 income year and later
income years.
[Schedule 2 to the Bill, item 14]
2.23 Although the amendments apply retrospectively from the start of the 2024-25
income year, they are beneficial to all affected taxpayers as they
retrospectively reduce or remove liability for the Medicare levy and the
surcharge that would otherwise apply to affected taxpayers.
12
Statement of
Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Treasury Laws Amendment (More Cost of Living Relief) Bill 2025
Table of Contents:
Schedule 1: New tax cuts for every Australian taxpayer ...................... 13
Overview ....................................................................................... 13
Human rights implications ............................................................. 14
Conclusion .................................................................................... 14
Schedule 2: Increasing the Medicare levy low-income thresholds ....... 14
Overview ....................................................................................... 14
Human rights implications ............................................................. 15
Conclusion .................................................................................... 15
Schedule 1: New tax cuts for every Australian
taxpayer
Overview
3.1 Schedule 1 is compatible with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of the Human
Rights (Parliamentary Scrutiny) Act 2011.
3.2 Schedule 1 amends the Rates Act in Schedule 1 to the Bill to reduce the 16 per
cent personal income tax marginal rate for resident taxpayers to 15 per cent for
the 2026-27 income year and to 14 per cent for the 2027-28 income year and
later income years.
13
Statement of Compatibility with Human Rights
3.3 Schedule 1 provides further tax relief to Australian taxpayers. The tax cuts
provide more cost-of-living relief, return bracket creep and boost labour
supply.
Human rights implications
3.4 Schedule 1 does not engage any of the applicable rights or freedoms.
Conclusion
3.5 Schedule 1 is compatible with human rights as it does not raise any human
rights issues.
Schedule 2: Increasing the Medicare levy
low-income thresholds
Overview
3.6 Schedule 2 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
3.7 Schedule 2 to the Bill amends the Medicare Levy Act 1986 and the A New Tax
System (Medicare Levy Surcharge--Fringe Benefits) Act 1999 to:
• increase the Medicare levy low-income thresholds for individuals and
families (along with the dependent child-student component of the
family threshold) in line with movements in the CPI;
• increase the Medicare levy low-income thresholds for individuals and
families eligible for the SAPTO (along with the dependent
child-student component of the family threshold), in line with
movements in the CPI; and
• increase the surcharge low-income threshold in line the movements in
the CPI.
3.8 This ensures that low-income individuals, families, seniors and pensioners will
continue to be exempt from the Medicare levy or pay a reduced levy rate in the
2024-25 income year if their income has increased in line with, or less than,
movements in the CPI.
14
Treasury Laws Amendment (More Cost of Living Relief) Bill 2025
Human rights implications
3.9 Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
3.10 Schedule 2 to the Bill is compatible with human rights as it does not raise any
human rights issues.
15