Australian Tax Brackets Explained (Resident Individuals)

Australia’s personal income-tax system begins with a tax-free threshold: an amount of taxable income that a resident individual can earn in a financial year before any income tax is charged on it. Income below the threshold is taxed at nil, and tax only begins to apply on the dollars earned above it.

In practice, most people claim the threshold through a single employer or income source by ticking the relevant box on their tax-file-number declaration. If you have more than one job and claim the threshold on both, too little tax may be withheld across the year, which can leave a balance owing at lodgement. That is a withholding question, not a change to how much tax is ultimately payable.

The threshold is a feature of the resident individual rates only. Non-residents for tax purposes are generally taxed from the first dollar under a different scale, and special rules apply to working-holiday makers and to part-year residents. The exact threshold amount is set by government and published by the ATO, so treat any figure you read as a general guide and confirm the current-year amount before relying on it.

The most common misunderstanding about income tax is the belief that earning a dollar more, and crossing into a higher bracket, somehow taxes your whole income at the higher rate. That is not how the system works. Australia uses a progressive, bracketed structure, and the defining rule is simple: only the income that falls within a given bracket is taxed at that bracket’s rate.

Imagine income as water filling a series of containers stacked from lowest to highest. The first container is the tax-free portion. The next container is taxed at the lowest positive rate, the one above it at a higher rate, and so on. As your income rises, it spills into the next container up, but the dollars already sitting in the lower containers keep their lower rate. Only the dollars in the top container you reach are taxed at that top rate.

This is why crossing into a higher bracket never reduces your after-tax income on the dollars you already earned. The higher rate applies only to the income above the threshold, not below it. Understanding this removes a great deal of anxiety about pay rises, overtime and bonuses: more gross income always means more after-tax income, even if a portion of the extra is taxed at a higher marginal rate. This is general information about how the mechanism works, not advice about your own position.

The following are the resident individual income-tax rates for the 2024–25 income year, shown here as a general guide only. They exclude the Medicare levy, which is calculated separately (covered below). Rates and thresholds are set each year by the government and published by the ATO, so confirm the current-year figures before relying on them.

• Taxable income up to $18,200 — nil (the tax-free threshold).
• $18,201 to $45,000 — 16% on the part of income within this band.
• $45,001 to $135,000 — 30% on the part of income within this band.
• $135,001 to $190,000 — 37% on the part of income within this band.
• Above $190,000 — 45% on the part of income above this threshold.

Read the table the way the marginal system actually applies it: each rate applies only to the slice of income that falls within its band, not to your entire income. So a resident with, say, taxable income in the third band pays nil on the first slice, 16% on the next slice, and 30% only on the portion that sits within the $45,001 to $135,000 band.

These figures are presented as general guidance, not personal advice, and they do not include the Medicare levy or any tax offsets, which can change the final amount payable. Because rates can change between financial years, always check the current-year scale with the ATO, or ask us, before applying these numbers to a real decision.

The income tax worked out from the brackets is not the whole story. Most resident taxpayers also pay the Medicare levy, a separate charge that helps fund the public health system. As a general guide, the levy is currently calculated as 2% of taxable income for most taxpayers (the rate is set by government and can change between income years) and is added to the income tax produced by the bracket calculation.

The levy is not flat for everyone. Lower-income taxpayers may pay a reduced levy or be exempt entirely, with reduction thresholds that the government sets each year. Certain people, such as some pensioners and foreign residents, may also be exempt. These thresholds and exemptions are general in nature and depend on individual circumstances.

Separately, a Medicare levy surcharge can apply to higher-income earners who do not hold an appropriate level of private hospital cover. The surcharge is calculated on top of the standard levy and is designed to encourage private health insurance among those who can afford it. Whether it applies, and at what rate, depends on income for surcharge purposes and on the cover you hold. The settings change from time to time, so confirm the current-year levy, reduction thresholds and surcharge rules with the ATO rather than assuming last year’s figures still apply.

Two different rates describe your tax position, and confusing them is common. Your marginal rate is the rate applied to your next dollar of income — the rate of the highest bracket your income reaches. Your effective rate is the total income tax you actually pay divided by your total taxable income, expressed as a percentage.

Because the lower brackets, including the tax-free portion, always apply to part of your income, your effective rate is always lower than your marginal rate. To illustrate the concept generically: consider someone whose income reaches into a middle bracket. The tax-free portion is taxed at nil, the next slice at the lowest positive rate, and only the top slice at the middle rate. Blended across the whole income, the average — the effective rate — sits well below the marginal rate of that middle bracket.

This distinction matters when people talk loosely about “being in the X% tax bracket”. Being in a bracket describes your marginal rate, not the share of your income that actually goes to tax. The effective rate is usually the more meaningful figure for understanding your overall position. The example here is a general illustration of how the two rates relate, not a calculation for any specific person or a substitute for advice on your own circumstances.

The brackets and the Medicare levy determine the headline tax, but tax offsets can reduce the final amount payable. An offset is different from a deduction: a deduction reduces the income on which tax is calculated, while an offset reduces the tax itself, dollar for dollar, after the brackets have done their work.

One general example is the low income tax offset, which can reduce tax for eligible lower-income earners and phases out as income rises. Other offsets exist for particular circumstances, and the rules, amounts and phase-out points are set by government and can change from year to year. Whether any offset applies, and how much it is worth, depends entirely on individual circumstances.

Because offsets, brackets, the levy and the thresholds all interact, the only reliable way to know your actual position is to apply the current-year rules to your own figures. This guide is general information, not personal advice — your circumstances differ from anyone else’s, and the rates and offsets are set each year. Always confirm the current-year figures with the ATO, or speak with us about how the rules apply to your situation before making a decision.

The information on this guide is general in nature and does not take into account your objectives, financial situation or needs. Tax rates, thresholds, the Medicare levy and offsets are set each year by the government and published by the ATO, and can change between financial years. Measures announced in a Federal Budget are not law until enacted — the 2026–27 Budget announced CGT and negative-gearing changes that are not yet law and are intended to apply from 1 July 2027 if enacted, so always check the current law for the relevant income year. Nothing here is personal tax advice or a guaranteed tax outcome. Advice based on your circumstances is available through a scoping engagement with Eternity Group Accountants.