Bracket Creep in Australia: What It Means for Your Tax Return
Bracket creep happens when a pay rise pushes more of your income into a higher tax bracket, even though the tax brackets themselves have not changed. Because Australia's resident tax rates and thresholds are identical for 2025-26 and 2026-27, any wage growth this year can quietly lift the share of your income taxed at 30 cents or more in the dollar, without a single new law being passed.
What Is Bracket Creep?
Bracket creep is the gradual rise in the average rate of tax you pay as your income grows, while the tax brackets that set those rates stay fixed.
Australia's resident income tax system is progressive: each extra dollar you earn is taxed at the rate for the bracket it falls into, not your whole income at one flat rate. The Australian Taxation Office's current resident tax rates, confirmed on ato.gov.au for both the 2025-26 and 2026-27 income years, are shown below. These figures exclude the 2% Medicare levy.
Taxable income | Tax on this income |
$0 to $18,200 | Nil |
$18,201 to $45,000 | 16c for each $1 over $18,200 |
$45,001 to $135,000 | $4,288 plus 30c for each $1 over $45,000 |
$135,001 to $190,000 | $31,288 plus 37c for each $1 over $135,000 |
$190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
Because these thresholds are set in law and only move when the government legislates a change, they do not automatically track inflation or average wage growth. When your pay rises but the $45,000 and $135,000 cut-offs stay exactly where they were, more of your income sits above those lines than it did last year. That silent shift is bracket creep.
Why Does Bracket Creep Happen If Tax Rates Do Not Change?
Bracket creep happens because the dollar thresholds between brackets are fixed, so inflation and ordinary wage rises alone can push a larger slice of your income into a higher bracket.
Say your salary moves from $44,000 to $46,200, a 5% rise that may do little more than keep pace with the cost of living. Before the rise, your entire income above the tax-free threshold sat in the 16 cent bracket. After it, the portion between $45,000 and $46,200 is taxed at 30 cents in the dollar instead. You have not become meaningfully better off, but a bigger share of your pay is now taxed at the higher rate. Multiply that effect across millions of taxpayers over several years without any change to the thresholds, and bracket creep becomes a significant driver of how much total tax is collected.
How Much More Tax Could Bracket Creep Cost You?
Using the ATO's own resident tax rates, a $2,200 pay rise from $44,000 to $46,200 increases your tax bill by $520, not just the $352 you might expect from a flat 16% rate.
On $44,000, the tax payable (before the Medicare levy and any offsets) is 16c for each dollar over $18,200, which is $4,128. On $46,200, the first $45,000 is taxed the same way, giving $4,288, and the remaining $1,200 is taxed at 30 cents in the dollar, adding $360, for a total of $4,648. Your income rose by exactly $2,200, but your tax rose by $520, around 23.6% of the rise, because part of it now falls in a higher bracket. This is a simplified example that ignores the Medicare levy and offsets such as the low income tax offset, but it shows the mechanism clearly: the brackets did the work, not a change in policy.
How Does Tax Falcon Help You Counter the Effect of Bracket Creep?
Only the government can change the tax brackets themselves, so the practical way to limit bracket creep's bite on your own return is making sure every eligible deduction and offset actually reduces your taxable income, and Tax Falcon's return process is built around exactly that.
When you lodge your return with Tax Falcon, direct ATO pre-fill brings in your income and withholding automatically, and Falcon-Vision AI checks your answers for deductions most people miss, before a certified tax-agent review goes over the return with a maximum refund guarantee. For a standard individual tax return, Tax Falcon charges $88 (or $25 for a nil return), and the whole process from sign-up to lodgement is designed to take under 10 minutes. None of that moves the tax brackets, but claiming every deduction and offset you are entitled to keeps your taxable income, and the amount of it exposed to the higher bracket, as low as it legally should be.
What Can Be Done About Bracket Creep?
Bracket creep can only be reversed at a policy level, by legislating new brackets or indexing the thresholds to inflation, so individual taxpayers cannot undo it, but they can make sure it is not made worse by an inaccurate or incomplete tax return.
Periodically, the Australian government legislates new resident tax brackets, as it has done in recent years, which resets the thresholds and offsets some of the creep that built up beforehand. Between those changes, the only lever available to an individual is accuracy: checking that all income is reported correctly, that work-related deductions and any offsets you qualify for are claimed, and that the return is reviewed before it is lodged. None of this changes the brackets themselves, but it stops bracket creep from being compounded by a return that leaves money on the table.
Frequently Asked Questions
What is bracket creep in simple terms?
Bracket creep is when a pay rise pushes part of your income into a higher tax bracket, even though the government has not announced a tax increase. It happens because Australia's tax brackets are fixed dollar amounts that do not automatically move with inflation or wages.
How often do Australia's tax brackets change?
Resident tax brackets only change when the government legislates a new set of rates and thresholds. As confirmed on ato.gov.au, the current resident tax rates are identical for the 2025-26 and 2026-27 income years, so no change has been legislated between those two years.
Does bracket creep affect everyone the same way?
No. Bracket creep has the biggest proportional effect on people whose income is close to a bracket threshold, such as $45,000 or $135,000, because a relatively small pay rise is enough to push part of their income into the next rate.
Is bracket creep the same as a tax increase?
Not legally. No new tax rate or law is passed, but the practical effect is similar: taxpayers end up paying a higher average rate of tax on their income over time without parliament voting for a rate rise.
How can I reduce the impact of bracket creep on my tax return?
You cannot change the tax brackets yourself, but you can make sure your taxable income is not higher than it needs to be by claiming every deduction and offset you are legally entitled to, which is where a reviewed, ATO pre-fill based return helps.
Source: Australian Taxation Office, Tax rates and codes, resident tax rates for 2025-26 and 2026-27 (ato.gov.au).
