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📊 Marginal Tax Bracket Breakdown
How Australian Income Tax Works — 2025–26
Australia uses a progressive marginal tax system. Understanding how it works helps you calculate your exact liability, plan deductions, and avoid surprises at tax time.
Progressive Brackets — You Only Pay Each Rate on That Slice
Australian income tax is marginal, meaning each dollar of income is taxed at the rate for the bracket it falls in — not on your whole income at one rate. For example, on an $80,000 salary: $0–$18,200 is taxed at 0%, $18,201–$45,000 at 16%, and $45,001–$80,000 at 30%. Your top rate is 30%, but your effective rate is much lower because lower slices are taxed less.
Apply Tax Offsets — LITO Reduces Your Tax Bill Directly
After calculating gross tax from the brackets, the ATO applies offsets (also called rebates), which reduce tax payable dollar-for-dollar. The main one for most Australians is the Low Income Tax Offset (LITO) — worth up to $700 for incomes below $37,500, tapering to zero at $66,667. Offsets are non-refundable — they can reduce tax to zero, but won’t generate a refund on their own.
Add Medicare Levy — 2% for Most Residents
On top of income tax, most Australian residents pay a 2% Medicare Levy on their taxable income to fund public healthcare. Low-income earners below ~$27,222 are exempt, and there’s a phase-in range. Higher earners without private hospital cover also pay the Medicare Levy Surcharge (MLS) of 1%–1.5% — on top of the standard 2%.
HECS/HELP Repayments — New Marginal System from July 2025
If you have a student loan, compulsory repayments start when income exceeds $67,000 (raised from $54,435 in 2025). Under the new marginal system, you only repay on income above $67,000 — meaning at $80,000 you repay 15% × $13,000 = $1,950/year. All HELP debts were also reduced by 20% as of 1 June 2025.
Superannuation — 12% Employer Contribution (Not Deducted from Pay)
From 1 July 2025, your employer must contribute 12% of your ordinary time earnings into your super fund — paid on top of your salary, not out of it. Employer contributions are taxed at 15% inside your fund. Our calculator shows your super separately so you can see total compensation vs take-home pay.
Lodge Your Tax Return by 31 October
The Australian financial year runs 1 July – 30 June. Most individuals must lodge their tax return by 31 October each year (or later if using a registered tax agent). Your employer withholds PAYG tax each pay cycle, and your return reconciles actual tax owed vs withheld. Most Australians receive a refund — the average is around $3,000.
Australian Income Tax Brackets 2025–26
Official ATO tax rates for the 2025–26 financial year (1 July 2025 – 30 June 2026), including the Stage 3 tax cuts that took effect from 1 July 2024.
| Taxable Income | Marginal Rate | Tax on This Slice | Cumulative Tax (max) | Who Is in This Bracket |
|---|---|---|---|---|
| $0 – $18,200 | 0% | $0 | $0 | Tax-free threshold (residents) |
| $18,201 – $45,000 | 16% | Up to $4,288 | $4,288 | Part-time / junior workers |
| $45,001 – $135,000 | 30% | Up to $27,000 | $31,288 | Most full-time workers |
| $135,001 – $190,000 | 37% | Up to $20,350 | $51,638 | Senior professionals |
| $190,001+ | 45% | 45¢ per $1 above | Unlimited | Very high income earners |
Note: These rates exclude the 2% Medicare Levy. The Stage 3 tax cuts reduced the 19% rate to 16%, lowered 32.5% to 30%, and raised the 37% threshold from $120,000 to $135,000 from 1 July 2024.
| Other Residency Types — 2025–26 | Taxable Income | Rate | Notes | |
|---|---|---|---|---|
| Foreign Residents | $0 – $135,000 | 30% | No tax-free threshold, no LITO | |
| $135,001 – $190,000 | 37% | No Medicare levy | ||
| $190,001+ | 45% | Higher effective rates than residents | ||
| Working Holiday (417/462) | $0 – $45,000 | 15% | Flat rate on first $45k | |
| $45,001+ | 32.5–45% | Non-resident rates apply above $45k | ||
Coming changes — July 2026 & July 2027: The March 2025 Federal Budget legislated two further cuts: from 1 July 2026, the 16% rate drops to 15%; from 1 July 2027, it drops further to 14%. This saves earners above $45,000 an additional $268/year from 2026-27 and $536/year from 2027-28.
Tax Offsets, Medicare & HECS — 2025–26 Guide
Beyond the basic tax brackets, these three components significantly affect how much tax Australians actually pay — and how much they take home.
Low Income Tax Offset (LITO)
LITO reduces your income tax payable by up to $700 for incomes at or below $37,500. It phases down at 5 cents per dollar between $37,501 and $45,000 (reducing to $325), then at 1.5 cents per dollar between $45,001 and $66,667 where it reaches zero. LITO is a non-refundable offset — it can reduce tax to zero but doesn’t generate a refund.
Medicare Levy — 2%
Most Australian residents pay a flat 2% Medicare Levy on taxable income to fund public healthcare. Low-income singles below $27,222 are exempt, with a phase-in range to $34,027. The rate applied to the phase-in range is 10% of (income − threshold) — this prevents a sudden jump. SAPTO recipients have higher exemption thresholds.
Medicare Levy Surcharge (MLS)
Singles earning over $101,001 without eligible private hospital cover pay the MLS on top of the 2% levy: 1% for $101,001–$118,000; 1.25% for $118,001–$144,000; 1.5% above $144,001. For many earners near the threshold, the cost of hospital insurance is lower than the surcharge — making it a financially smart decision.
HECS/HELP — New Marginal System 2025–26
Compulsory HECS repayments begin when income exceeds $67,000 (up from $54,435 in 2024–25). Under the new marginal system, only income above $67,000 is subject to repayment: 15% on $67,001–$125,000; $8,700 + 17% on $125,001–$179,285; 10% of total income above $179,286. All HELP debts were cut by 20% on 1 June 2025.
SAPTO — Seniors & Pensioners
Seniors and pensioners who meet age and residency criteria receive the Seniors and Pensioners Tax Offset (SAPTO) of up to $2,230 (single) or $1,602 (each member of a couple). This effectively raises the tax-free threshold to $32,615 for eligible singles. SAPTO also raises Medicare Levy exemption thresholds significantly.
Superannuation — 12% from July 2025
The Superannuation Guarantee (SG) rate is 12% of ordinary time earnings from 1 July 2025, paid by your employer on top of your salary. Employer contributions are taxed at 15% inside your super fund (or 30% for high earners under Division 293). Salary sacrifice contributions can reduce your taxable income while boosting retirement savings.
9 Legal Ways to Reduce Your Income Tax in Australia
These ATO-approved strategies can legitimately reduce your taxable income or tax payable — used by millions of Australians every year.
Claim All Work-Related Deductions
Work expenses reduce taxable income dollar-for-dollar. Common claims include home office costs (using ATO fixed rate or actual), tools and equipment, work clothing and uniforms, professional subscriptions, and self-education. Keep receipts for everything over $300.
Salary Sacrifice Into Super
Pre-tax contributions to super are taxed at 15% inside the fund — far below most people’s marginal rate. Salary sacrificing $5,000–$20,000 per year can yield significant tax savings, especially for earners in the 30%–45% bracket. Concessional cap is $30,000/year for 2025–26.
Negative Gearing on Investment Property
If your investment property earns less in rent than it costs to hold (interest, maintenance, depreciation), the net loss offsets your other income, reducing your taxable income. Combined with depreciation schedules, this can produce significant annual tax reductions for property investors.
Pre-Pay Deductible Expenses Before 30 June
Expenses deductible in the current year can be pre-paid up to 12 months in advance before 30 June to bring the deduction forward. This works for investment loan interest, income protection insurance, professional subscriptions, and more.
Get Private Hospital Cover to Avoid MLS
If you earn over $101,001 (single), taking out eligible private hospital cover eliminates the Medicare Levy Surcharge (1%–1.5% of income). For many earners, the premium costs less than the surcharge — and you get the added benefit of shorter hospital wait times.
Capital Gains Tax Discount
Assets held longer than 12 months qualify for a 50% CGT discount (for individuals). Selling in a low-income year (e.g., after retirement or between jobs) can further reduce the effective CGT rate. Timing capital gains events around the financial year end is a common strategy.
Donations to DGR Charities
Donations of $2 or more to Deductible Gift Recipients (DGR) are fully tax-deductible. On a 30% marginal rate, a $1,000 donation costs you effectively $700 after the tax saving. Keep receipts and ensure the charity has DGR status on the ABN Lookup.
Voluntary HECS Repayments Before 1 June
Making extra HECS repayments before 1 June (the indexation date) reduces your debt before CPI is applied, saving on long-term debt growth. With the new marginal repayment system, those in the 10% flat-rate tier ($179,286+) benefit most from voluntary repayments.
Lodge On Time and Use a Tax Agent
Using a registered tax agent extends your lodgement deadline and often uncovers deductions you’ve missed. The agent’s fee is itself tax-deductible. Late lodgement penalties are $222 per 28-day period, up to five units — always lodge on time.
Frequently Asked Questions
Clear answers to the most searched questions about how Australian income tax works in 2025–26.