The basics
Australia's financial year runs from 1 July to 30 June. Income tax is charged on your taxable income for that year: your assessable income (salary, interest, rent, business income and so on) minus any deductions you are entitled to claim.
The system is progressive. As a resident you pay no tax on the first $18,200, then 15% on income up to $45,000, 30% up to $135,000, 37% up to $190,000 and 45% above that (2026–27 rates).
Only the extra income is taxed at the higher rate
A common myth is that a pay rise can push you into a higher bracket and leave you worse off. It cannot. Each rate applies only to the slice of income inside its bracket. On $100,000, for example, the tax from the rate table is $20,520 – an average of 20.5%, even though the top slice is taxed at 30%.
How tax is collected: PAYG withholding
If you are an employee, your employer withholds tax from every pay and sends it to the ATO. The amount is an estimate of your annual tax spread across the year, based on the details in your tax file number declaration – including whether you claim the tax-free threshold and whether you have a study loan.
After 30 June you lodge a tax return. The ATO works out your actual tax for the year and compares it with what was withheld. If too much was withheld you get a refund; if too little, you have a bill to pay.
What sits on top of income tax
Most employees also see these amounts:
- Medicare levy: 2% of taxable income for most residents.
- Low income tax offset: reduces tax by up to $700 for residents with taxable income under $66,667.
- HELP repayments: compulsory once repayment income exceeds $69,528, if you have a study loan.
- Medicare levy surcharge: an extra charge for higher earners without private hospital cover (not included in our calculators).
Residents and foreign residents
Tax residency is not the same as citizenship or visa status. Foreign residents for tax purposes have no tax-free threshold and pay 30% from the first dollar, but they are not liable for the Medicare levy. If you are unsure of your status, the ATO has residency tests on its website.