Understanding Income Tax in Australia

Income tax in Australia is based on a progressive tax system. This means you pay a higher percentage of tax as your income increases. The system uses tax brackets, which divide taxable income into different ranges, each with its own rate.

Taxable Income:

Your total assessable income minus allowable deductions. Learn more about assessable income on the ATO website

Tax Brackets:

Different ranges of income taxed at specific rates. Current brackets are updated annually by the ATO.

Deductions and Offsets:

Reduce your taxable income or the tax payable. For example, work-related expenses can be claimed as deductions.

For the 2024-2025 financial year, the tax brackets are as follows:

In addition to income tax, many Australians also pay the Medicare Levy, which is 2% of your taxable income. Some may pay additional surcharges if they do not have private health insurance.

FAQs

Q: Do I need to pay tax if I earn below $18,200?
A: No, if your taxable income is below the tax-free threshold, you won’t pay any tax. However, you may still need to lodge a tax return if tax was withheld from your income. Learn more on the ATO website

Q: What are deductions, and how do they work?
A: Deductions reduce your taxable income. For example, if you earn $50,000 and claim $5,000 in deductions, your taxable income becomes $45,000. Visit the ATO’s deductions guide for more details.