Income Tax Brackets

Australia uses a progressive tax system, meaning you pay higher tax rates on higher portions of your income. You do not pay the top rate on your entire income -- only on the amount that falls within each bracket. The Australian Tax Office (ATO) sets these rates each financial year.

The first $18,200 you earn is tax-free (the tax-free threshold). Income above this amount is taxed at increasing rates as your income rises through the brackets.

Australian Tax Brackets (2025-26)

Taxable Income	Tax Rate
$0 - $18,200	0% (Tax-free)
$18,201 - $45,000	16%
$45,001 - $135,000	30%
$135,001 - $190,000	37%
$190,001 and over	45%

Deductions and Tax Returns

A tax deduction reduces your taxable income, meaning you pay less tax. Common deductions include work-related expenses (uniforms, tools, travel), self-education expenses related to your current employment, charitable donations, and working-from-home expenses. You must keep receipts and records to claim deductions.

Each year, Australian taxpayers lodge a tax return with the ATO (usually by 31 October). Your employer withholds tax from your wages throughout the year (PAYG). When you lodge your return, the ATO calculates whether you have paid too much or too little tax. If you overpaid, you receive a tax refund. If you underpaid, you owe additional tax.

Common Deductions

● Work-related clothing and laundry

● Vehicle and travel expenses for work

● Working from home expenses

● Tools and equipment for work

● Self-education related to current work

● Donations to registered charities

GST and Medicare Levy

The Goods and Services Tax (GST) is a 10% tax applied to most goods and services sold in Australia. It is collected by businesses and remitted to the government. Some items are GST-free, including fresh food, medical services, and education. Unlike income tax, GST is a flat-rate consumption tax paid by everyone regardless of income.

The Medicare levy is an additional 2% of your taxable income that funds Australia's public healthcare system. High-income earners without private health insurance may also pay the Medicare levy surcharge (an additional 1-1.5%). Low-income earners may be eligible for a reduction or exemption from the Medicare levy.

Income Tax vs GST

Income Tax

Progressive rate (0-45%)

Based on earnings

Paid by individuals and businesses

Lodged annually

GST

Flat rate (10%)

Based on consumption

Paid by everyone who buys goods/services

Included in prices

Key Vocabulary

Progressive Tax

A tax system where the rate increases as the taxable amount increases, so higher earners pay a larger percentage on higher income.

Tax Deduction

An expense that can be subtracted from gross income to reduce the total amount of taxable income.

GST

A 10% consumption tax applied to most goods and services in Australia, collected by businesses.

Medicare Levy

An additional 2% tax on taxable income that funds Australia's public healthcare system, Medicare.

Worked Examples

1

Calculate the income tax on a taxable income of $55,000.

Step 1: First $18,200 is tax-free: $0.

Step 2: $18,201 to $45,000 at 16%: ($45,000 - $18,200) x 0.16 = $26,800 x 0.16 = $4,288.

Step 3: $45,001 to $55,000 at 30%: ($55,000 - $45,000) x 0.30 = $10,000 x 0.30 = $3,000.

Answer: Total income tax = $0 + $4,288 + $3,000 = $7,288.

2

A laptop costs $1,100 including GST. What is the GST component?

Step 1: The GST-inclusive price represents 110% of the base price (100% + 10% GST).

Step 2: GST component = Price / 11 = $1,100 / 11 = $100.

Answer: The GST component is $100, and the pre-GST price is $1,000.

3

Sarah earns $70,000 and has $2,500 in work-related deductions. What is her taxable income and Medicare levy?

Step 1: Taxable income = Gross income - Deductions = $70,000 - $2,500 = $67,500.

Step 2: Medicare levy = 2% of taxable income = $67,500 x 0.02 = $1,350.

Answer: Sarah's taxable income is $67,500 and her Medicare levy is $1,350.

Knowledge Check

Select the correct answer for each question. Click "Check Answer" to see if you are right.

Question 1

What is the tax-free threshold in Australia?

$18,200 $10,000 $25,000 $45,000

Question 2

What type of tax system does Australia use for income tax?

Flat rate tax Progressive tax Regressive tax Consumption tax

Question 3

A product costs $330 including GST. How much is the GST component?

$33 $3.30 $30 $300

Question 4

What is the Medicare levy rate for most Australian taxpayers?

1% 10% 5% 2%

Question 5

Which of the following is NOT a valid tax deduction for an employee?

Personal grocery shopping Work-related uniform laundry costs Tools and equipment used for work Donations to registered charities

Understanding Taxation