Australia operates a progressive income tax system in which higher earnings are taxed at higher marginal rates. For the 2025-26 financial year, the tax-free threshold is AUD 18,200. The first bracket (19%) applies to income from AUD 18,201 to AUD 45,000. The 30% bracket covers AUD 45,001 to AUD 135,000, and the 37% bracket covers AUD 135,001 to AUD 190,000. Income above AUD 190,000 is taxed at 45%. The Medicare Levy of 2% applies to taxable income above AUD 28,400 (single) and is added to the tax calculated under these brackets. This article explains each bracket and provides worked examples.
Tax Brackets for 2025-26
The ATO’s individual income tax rates for the 2025-26 financial year (unchanged from the Stage 3 tax cuts that took effect from 1 July 2024) are as follows. Income from AUD 0 to 18,200: no tax. AUD 18,201 to 45,000: 19 cents for each dollar over 18,200. AUD 45,001 to 135,000: AUD 5,092 plus 30 cents for each dollar over 45,000. AUD 135,001 to 190,000: AUD 32,092 plus 37 cents for each dollar over 135,000. Over AUD 190,000: AUD 52,442 plus 45 cents for each dollar over 190,000. These rates do not include the Medicare Levy (2% of taxable income, phased in for low-income earners). Foreign residents are not entitled to the tax-free threshold and are taxed from the first dollar of Australian income.
Medicare Levy and Medicare Levy Surcharge
The Medicare Levy is 2% of taxable income. Single taxpayers with taxable income below AUD 28,400 (FY26 threshold) pay no Medicare Levy; those earning AUD 28,401-33,000 pay a reduced levy under a phase-in formula; those above AUD 33,000 pay the full 2%. The Medicare Levy Surcharge (MLS) is an additional 1-1.5% applied to taxpayers earning above AUD 90,000 (single) or AUD 180,000 (family) who do not hold an appropriate level of private hospital cover. MLS is designed to incentivise private health insurance uptake and reduce pressure on the public Medicare system. Temporary residents on certain visa subclasses (including 482, 485, 417) may be exempt from the Medicare Levy if they are not entitled to Medicare benefits — check your Medicare Entitlement Statement.
Worked Examples: What You Pay on Different Salaries
On a AUD 60,000 annual salary: tax on the first AUD 18,200 is zero; tax on AUD 18,201-45,000 (AUD 26,800) at 19% = AUD 5,092; tax on AUD 45,001-60,000 (AUD 15,000) at 30% = AUD 4,500; total tax AUD 9,592. Medicare Levy: AUD 60,000 × 2% = AUD 1,200. Total tax and levy: AUD 10,792. Effective tax rate: 18.0%. On a AUD 120,000 salary: tax on first AUD 45,000 = AUD 5,092; plus AUD 75,000 at 30% = AUD 22,500; total tax AUD 27,592. Medicare Levy AUD 2,400. Total: AUD 29,992. Effective rate: 25.0%. On AUD 200,000: tax on first AUD 135,000 = AUD 32,092; plus AUD 55,000 at 37% = AUD 20,350; plus AUD 10,000 at 45% = AUD 4,500; total tax AUD 56,942. Medicare Levy AUD 4,000. Total: AUD 60,942. Effective rate: 30.5%.
Tax Rates for Working Holiday Makers
Holders of subclass 417 and 462 visas (Working Holiday Maker) are taxed under a separate regime. From the first dollar earned up to AUD 45,000, WHM taxpayers pay 15% (not 19%). From AUD 45,001 to 135,000, they pay 30% (same as residents). From AUD 135,001 to 190,000: 37%. Above AUD 190,000: 45%. WHM visa holders do not pay the Medicare Levy, as they are not entitled to Medicare. Employers must be registered with the ATO as a WHM employer and withhold at the WHM rate; if they incorrectly withhold at resident rates, the employee can claim the overpayment on their tax return.
Tax Offsets: Low and Middle Income
The Low and Middle Income Tax Offset (LMITO), which provided up to AUD 1,500, was discontinued from 1 July 2022 and is not available for FY26. The Low Income Tax Offset (LITO) remains available: taxpayers with taxable income below AUD 37,500 receive the maximum offset of AUD 700, which phases out at AUD 45,000 (reducing by 5 cents for each dollar above AUD 37,500). LITO is a non-refundable offset, meaning it reduces tax payable to zero but cannot generate a refund beyond the tax already paid. Taxable income above AUD 66,667 receives no LITO benefit.
FAQ
Q: When does the Australian financial year start and end? A: The Australian financial year runs from 1 July to 30 June. Tax returns for FY26 (1 July 2025 to 30 June 2026) are due by 31 October 2026 for self-lodgers, or later if lodged through a registered tax agent.
Q: Are international students considered residents for tax purposes? A: Most international students on a subclass 500 visa who are enrolled in a course longer than 6 months in Australia are considered Australian residents for tax purposes and are entitled to the tax-free threshold. The ATO uses a “resides test” — if you live in Australia, intend to stay, and have established a home, you are generally a resident for tax purposes.
Q: What deductions can I claim? A: Work-related expenses (uniform, tools, professional subscriptions), self-education expenses (if the study relates to your current employment), charitable donations over AUD 2 to registered deductible gift recipients, and tax agent fees. Claiming a deduction reduces your taxable income and therefore your tax liability.
Q: What is the tax-free threshold and who gets it? A: The tax-free threshold of AUD 18,200 means you pay no income tax on the first AUD 18,200 of your taxable income. Australian tax residents are automatically entitled to claim it. Foreign residents and WHM visa holders are not entitled to it — they pay tax from the first dollar.
Q: How does the PAYG withholding system work? A: Your employer withholds tax from each pay based on the tax tables published by the ATO. If too much was withheld over the year (for example, if you only worked part of the year), you receive a refund. If too little was withheld (for example, if you have multiple jobs or investment income), you may have a tax bill at lodgement.
Sources
- ATO Individual Tax Rates 2025-26
- ATO Working Holiday Maker Tax Rates
- Services Australia - Medicare Levy
- ATO Low Income Tax Offset
This article is informational only and does not constitute tax advice.