From 1 July 2026 a new personal income tax rate took effect, and it quietly changed the take-home pay figure that lenders use when they work out how much you can borrow. The 2026-27 income tax cut lowered the second tax bracket from 16 cents to 15 cents in the dollar, which lifts net pay by up to $268 a year for anyone earning above $45,000. It is a modest change, but because loan serviceability is built on after-tax income, it is worth understanding what it does and does not do for your borrowing power.
What changed in the 2026-27 income tax cut
The Australian Taxation Office publishes the resident tax scale, and for the 2026-27 income year the rate applying to taxable income between $18,201 and $45,000 fell from 16 cents to 15 cents for each dollar over $18,200. Every other threshold stayed the same. The tax-free threshold remains $18,200, the 30 cent rate still runs from $45,001 to $135,000, the 37 cent rate from $135,001 to $190,000, and the top 45 cent rate above $190,000.
Because the cut sits inside a band that is $26,800 wide, the maximum benefit is one cent in the dollar across that band, or $268 a year. Anyone with taxable income at or above $45,000 receives the full $268. A person earning $30,000 keeps around $118 more, since the lower rate only applies to the part of their income above the tax-free threshold. In weekly terms the full benefit is close to $5 a week, or roughly $22 a month.
Why after-tax income drives your borrowing power
When a lender assesses a car loan, personal loan or mortgage, it does not look at your gross salary in isolation. It converts your income to a net monthly figure, subtracts your living costs and existing commitments, and tests whether the surplus can cover the new repayment with a safety margin on top. A higher take-home pay figure flows straight into that surplus, so a tax cut nudges assessed borrowing capacity upward rather than sitting on paper only.
The nudge here is small. An extra $22 a month of surplus is helpful at the edges but will not transform how much you can borrow on its own. Living expenses, other debts, credit card limits and the size of your deposit all move the number far more than a $268 annual tax saving does. If you want to see the effect in your own situation, our repayment and borrowing calculators let you test different income and expense figures side by side.
The serviceability buffer has not moved
The tax cut changes your income, not the way lenders stress-test you. Lenders still assess new lending at an interest rate set above the actual rate you would pay, a serviceability buffer that protects both you and the lender if rates rise. That buffer is unchanged by anything in the tax scale, so the extra take-home pay is assessed against the same tougher test rate as before.
Interest rates themselves have also held steady. The Reserve Bank of Australia kept the cash rate at 4.35 per cent at its August 2026 meeting, leaving it where it has sat since May 2026. A held cash rate means assessment rates and buffers have been stable too, so the small income boost from the tax cut is not being offset by a fresh round of rate rises. A held rate is not a falling rate, though, and car and personal loan rates are priced on risk and term rather than moving one for one with the cash rate.
How the tax cut interacts with your budget
For most borrowers the tax cut matters more as monthly cash flow than as extra borrowing capacity. An extra $22 a month can cover part of a car loan repayment, top up a deposit over time, or simply give a little more headroom against the living costs that lenders scrutinise. Household budgets are already stretched by high prices, and small permanent gains in take-home pay are easier to plan around than one-off payments because they arrive every pay cycle.
If you are self-employed or run a business, the same scale applies to your taxable income, so the benefit shows up after your return is assessed rather than in a weekly pay packet. Lenders reviewing self-employed applicants generally work from taxable income across recent years, so a lower tax bill can lift the net figure they use, alongside the living expenses recorded on your application.
Making the most of a modest gain
A $268 saving will not decide a loan application, but it is part of a wider income picture that does. Stable or rising take-home pay, controlled living costs and a clean repayment history are what lift an assessment. Wage growth has been adding to pay packets as well, and the most recent wage figures show earnings still climbing, which compounds with the tax cut to slowly improve serviceability over time.
If you already have a car loan, the tax cut is a reminder to check whether your current rate still suits you. A small lift in cash flow can make it easier to absorb a refinance or to shorten a loan term. Our guide to refinancing and our current car loan rates are useful starting points, and comparing offers across our panel of lenders helps you see where a stronger income position could be put to work. As always, this is general information rather than personal financial advice, and your own circumstances should guide any decision.
The bottom line for borrowers
The 2026-27 income tax cut is real and permanent, but modest. It lifts take-home pay by up to $268 a year, which feeds into the net income lenders assess and gives a small boost to borrowing power and monthly budgets alike. It does not change the serviceability buffer, and it does not replace the bigger levers of a solid deposit, low existing debts and steady expenses. Treat it as a helpful tailwind rather than a green light, and keep the fundamentals of your application strong.
