Australian income tax is progressive; higher earners pay higher rates. The 2026 tax-free threshold remains $18,200. Understanding brackets helps predict annual tax liability.
Tax Brackets 2026
$18,200 or less: Nil tax (tax-free threshold) $18,200-$45,000: 19% + Medicare levy $45,000-$120,000: 32.5% + Medicare levy $120,000-$180,000: 37% + Medicare levy $180,000+: 45% + Medicare levy
Medicare levy adds 2% (or 2.5% for high earners without private insurance). These percentages are applied progressively to each bracket.
Calculating Tax
Example: $80,000 income
- First $18,200: Nil
- $18,200-$45,000 ($26,800): 26,800 × 19% = $5,092
- $45,000-$80,000 ($35,000): 35,000 × 32.5% = $11,375
- Subtotal: $16,467
- Add Medicare levy 2%: $1,600
- Total tax: $18,067 (Effective rate: 22.6%)
Recent Changes
2024-25 saw tax relief at lower-middle income levels. Indexation adjusts brackets annually to prevent bracket creep (effective from July 2024).
Deductions and Offsets
Work-related expenses, investment loan interest, and contributions to super reduce taxable income. Offsets include tax-free threshold benefit (~$3,445 value).
Planning Strategies
Maximizing superannuation contributions (15% tax vs. personal marginal rate) offers substantial savings for higher earners.
FAQ
Q: When is tax year? A: July 1 to June 30 in Australia.
Q: What if I earn more than one job? A: Report all income; higher tax applies to total income.
Q: Can I reduce my tax? A: Claim all eligible deductions and maximize super.