Australia uses a marginal tax rate system, meaning tax rates vary based on the tax bracket or threshold you fall into. The tax percentages that you pay depend on your corresponding income bracket.
The Australian Tax Office (ATO) is responsible for collecting income tax from taxpayers each financial year. Different marginal tax rates apply to Australian residents and foreign residents on their income tax in Australia.
Let’s break down the Australian income tax rates so you can figure which tax bracket applies to you for a particular year.
Australian Income Tax Update
The ATO has introduced the changes, effective July 2024, including tax cuts and Australian tax brackets and rates changes. Here’s a breakdown of the 2024 tax rate update.
- Lower Bottom Tax Rate: The lowest tax rate has been reduced from 19% to 16%.
- Reduced 32.5% Tax Rate: The 32.5% tax rate has been lowered to 30%.
- Higher Threshold for 37% Tax Rate: The income threshold at which the 37% tax rate applies has been increased from $120,000 to $135,000.
- Higher Threshold for 45% Tax Rate: The income threshold for the top 45% tax rate has been raised from $180,000 to $190,000.
Tax Cuts From 1 July 2024
| Income | 2023-24 Tax Paid | 2024-25 Tax Paid | Tax Cut |
|---|---|---|---|
$20,000 | $342 | $288 | $54 |
$50,000 | $6,717 | $5,788 | $929 |
$100,000 | $22,967 | $20,788 | $2,179 |
$150,000 | $40,567 | $36,838 | $3,729 |
$200,000 | $60,667 | $56,138 | $4,529 |
Please note that the figures above don’t account for the Medicare Levy or the potential benefits of tax offsets like the Low-Income Tax Offset (LITO).
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Income Tax Rates and Brackets for Residents 2025-26
The table below outlines the tax brackets and rates applicable to Australian permanent residents for income tax purposes.
Australian Resident Tax Rates 2025-26
| Income Thresholds | Tax Rate | Tax Payable |
|---|---|---|
$0 – $18,200 | 0% | No tax payable |
$18,201 – $45,000 | 16% | 16c for every dollar over $18,200 |
$45,001 – $135,000 | 30% | $4,288 plus 30c for every dollar over $45,000 |
$135,001 – $190,000 | 37% | $31,288 plus 37c for every dollar over $135,000 |
$190,001 and over | 45% | $51,638 plus 45c for every dollar over $190,000 |
Australian Resident Tax Rates
Please note that the income tax brackets above don’t account for the Medicare Levy or the potential benefits of tax offsets like the Low-Income Tax Offset (LITO).
What Is the Tax-Free Threshold?
The tax-free threshold is the amount of income you can earn in a financial year before you start paying income tax.
For the 2025-2026 financial year in Australia, the tax-free threshold is $18,200 for tax residents. This means that if you earn less than $18,200 in a financial year as a resident, you won’t have to pay any income tax.
For non-residents, the tax free threshold doesn’t apply to non-residents for their income tax in Australia.
Income Tax Rates and Brackets for Foreign Residents
If you’re an Australian non-resident for tax purposes, you’ll have to pay higher income taxes. This has a more significant impact on low-income earners.
As shown in the table below, foreign residents earning up to $135,000 must pay the same tax rate as Australian residents in the third tax bracket, with no tax-free threshold.
If you live overseas and still qualify as an Australian tax resident, you must pay income tax on your foreign income as well. It’s advisable to seek professional financial advice to minimise your tax liability.
AU Foreign Resident Tax Rates 2025-26
| Income Thresholds | Tax Rate | Tax Payable |
|---|---|---|
0 – $135,000 | 30% | 30c for each $1 |
$135,001 – $190,000 | 37% | $40,500 plus 37c for each $1 over $135,000 |
$190,001 and over | 45% | $60,850 plus 45c for each $1 over $190,000 |
Australian Foreign Resident Tax Rates 2025-26
How is Australian Income Tax Calculated?
To calculate your income tax in Australia, you must add your assessable income, including your worldwide income. There is an exception for non-residents, in which case you only need to declare your Australian income.
For instance, if you earn $90,000 from employment, $30,000 from rental property, and $20,000 in capital gains from selling shares, your total assessable income is $140,000. Before applying income tax rates, you must deduct any allowable expenses related to your income.
Let’s assume you have $10,000 in deductible expenses. This means your total taxable income is $130,000, placing you in the third tax bracket.
So, you’ll have to pay $4,288 plus 30c for each dollar over $45,000, i.e. 30% of $85,000 ($130,000 – $45,000), being a total tax payment of $29,788 without counting Medicare Levy.
What is Taxable Income in Australia?
Your taxable income is calculated by subtracting your allowable deductions from your assessable income. This figure determines the amount of Australian tax you need to pay.
What is Included in Assessable Income?
Assessable income includes the following.
- Employment Income: Salary, wages, bonuses, and allowances.
- Business Income: Profits from businesses or freelance work.
- Investment Income: Dividends, interest, rental income, and capital gains.
- Government Payments: Taxable pensions and allowances.
- Foreign Income: Overseas earnings (for Australian residents).
It covers all taxable earnings before allowable deductions are applied.
Formula for Taxable Income
To calculate your taxable income, follow this formula:
- Add together your total earnings
- Subtract deductions
- Apply tax rates
- Minus tax offsets
- Add Medicare levy (if applicable)
Please keep in mind that the government’s tax calculator does not include the Medicare Levy.
How Do You Know If You Are An Australian Resident for Tax Purposes?
To be an Australian tax resident, you must meet at least one of four ATO tests, even if you’re not a citizen or permanent resident. This means you may pay tax on your worldwide income.
If you move overseas and sever all ties with Australia, you’ll be classified as a non-resident and only taxed on Australian income. The four tests to determine Australian tax residency are:
- Resides Test: This is the primary test, focusing on your intention to reside in Australia, considering factors like physical presence, family ties, and social and economic connections.
- Domicile Test: This test considers your country of permanent home. If Australia is your domicile, you’re generally considered a tax resident.
- 183-Day Test: If you’re physically present in Australia for more than 183 days in a tax year, you’re likely a tax resident.
- Superannuation Test: If you’re a member of an Australian superannuation fund, it can indicate a strong connection to Australia and potential tax residency.
How Does Capital Gains Tax Fit Into Your Tax Payments?
Calculating your taxable income involves adding capital gains to your overall earnings. Capital gains occur when you sell assets such as shares or property. They are typically one-time payments that can push taxpayers into higher income tax brackets.
Capital gains tax, despite its name, is not a separate tax. When you file your tax return, you must report all your income, including capital gains, even if you have already paid payroll taxes on your employment income. The ATO will calculate the income tax that your employer has already paid and deduct it from the capital gains tax that you owe.
It is essential to deduct any expenses related to capital gains. For instance, if you sold a property for $800,000 but bought it five years ago for $600,000, your capital gain would be only $200,000.
What About the Medicare Levy in Australia?
All Australian tax residents must pay a 2% Medicare Levy in addition to their income tax in Australia.
Foreign residents are not obligated to pay the Medicare Levy since it would be impractical to contribute to a medical service they cannot utilise outside the country.
Individuals with high incomes may also be subjected to a Medicare Levy Surcharge. They can only avoid it if they have private health insurance or private patient hospital coverage. The surcharge has four tiers based on income thresholds—the surcharge rate increases with higher income levels.
Medicare Levy Surcharge Rates
| Medicare Levy Surcharge Tier | Income Thresholds for Individuals | Family Threshold | Rate of surcharge |
|---|---|---|---|
Tier 0 | Up to $93,000 | Up to $186,000 | 0% |
Tier 1 | $93,001 – $108,000 | $186,001 – $216,000 | 1% |
Tier 2 | $108,001 – $144,000 | $216,001 – $288,000 | 1.25% |
Tier 3 | $144,001 and over | $288,001 and over | 1.5% |
What Are the Australian Tax Rates for Temporary Residents?
To clarify, temporary residents in Australia are foreign nationals who reside there for a specific period without becoming full citizens. This includes expats who are currently living in Australia.
Temporary residents are subject to the same rules when determining their tax residency status. Suppose they live and work in Australia for more than six months in the same location. In that case, they will be classified as Australian tax residents.
However, if they travel through Australia for more than six months and work multiple jobs, they may be subject to working holiday maker tax rates and will not be considered tax residents. In this case, they would not be required to pay income tax on their foreign earnings.
How to Reduce Taxable Income in Australia
There are several steps you can take to reduce taxable income and minimise your tax payments in Australia.
- Keep Records: Firstly, keeping meticulous records of all your expenses and maintaining evidence like receipts and property maintenance bills is crucial. This will aid in accurately preparing and lodging your tax return and provide proof of your expenses if requested by the ATO.
- Negative Gearing: Secondly, if you own an investment property, consider the advantages of negative gearing, which involves losing property income to lower taxable income. This tactic is open to both Australian residents and non-residents.
- Tax Offsets: Thirdly, determine if you qualify for any tax offsets that can reduce your tax liability. Please note that most foreign residents are ineligible for tax offsets.
- Expert Help: Finally, consulting a financial advisor about your tax situation can help identify additional strategies to minimise your tax payments.
What Deductions Are Allowed on Taxable Income?
Numerous individuals are still determining which expenses they can deduct for tax purposes. The rule of thumb is that only expenses linked to earning an income, not personal expenditures, can be removed.
You can claim only a portion of an expense if it has personal and business uses. For instance, if you rent out a room in your residence, you can only claim deductions for the portion of the property that is rented out to occupants.
To fulfil your tax obligations for personal investments, you are required to file a tax return. The deductions that you can claim for your investments, whether it’s in property or dividends, are as follows:
- Account-keeping fees
- Ongoing fees for property management
- Payment for investment advice (for dividends and shares only)
- Interest and borrowing expenses related to your home loan
- Advertising costs for tenants
- Council rates
- Land tax
- Strata fees
- Depreciation
- Repairs and pest control
- Insurance
- Legal expenses
It is important to note that for property investments, the property must be rented out or genuinely available for rent. If the ATO determines that you did not make a reasonable effort to rent out your property, you will not be allowed to claim expenses for an empty property.
Your taxable income is your total income minus any allowable deductions. Claiming the right deductions can move you into a lower bracket — see our guide to claiming specific deductions for a category-by-category breakdown.
Case Study: An Australian Expat Living in Singapore
Ben, who has been living in Singapore for ten years, still owns a property in Australia and is required to lodge a tax return for his Australian income.
However, he is not considered an Australian tax resident. He is not obligated to pay personal income tax in Australia on his earnings in Singapore. Unfortunately, he is also ineligible for any tax offsets. Ben must report his Australian property earnings in his tax return.
Ben’s rental property generates $570 per week, but he incurs expenses of $100 per week for property maintenance and other fees. Additionally, he pays $400 a month on home loan interest repayments. Ben’s tax return shows $29,640 in net income and $26,000 in deductions, resulting in a taxable income of $3,640.
Since Ben is a foreign investor, he cannot claim the tax-free threshold or the low-income tax offset. As a result, he must pay $1,183 in taxes.
If Ben were still an Australian tax resident, would he pay less in total tax?
Suppose Ben earned AU$ 170,000 in Singapore. In that case, his total taxable income would be $199,640, which includes $26,000 in Australian deductions and $5,000 in work-related deductions from Singapore. The ATO would tax Ben on $168,640, and he would pay $47,463.80 in tax based on resident tax rates.
Although Ben would fall into a lower tax bracket, he would still pay considerably more in taxes. Additionally, Australian tax rates are higher than Singapore’s, where he only pays 18% instead of 37.5% on the same income. Ben could claim a Foreign Income Tax Offset if he pays double taxes.
Let Our Australian Expat Tax Expert Guide You
The tax rates in Australia are considered one of the highest globally, especially for expats earning an income there. As an expat, it’s generally advisable to end your tax residency in Australia to avoid paying taxes twice.
Tax offsets are available to lessen the tax liability, but usually only for tax residents. It is crucial to comprehend your tax obligations if you are moving or residing overseas.
Click here for our ATO tax health check to determine your taxe health with the ATO. Our team can help you make the most of your tax benefits once we know your situation.
Start Your AU Tax Journey as an Aussie Expat
Don’t let the stress of Australian taxes from overseas overwhelm you. Start your Australian expat tax journey with an AU tax health check!
FAQs about the Australian Income Tax Rates and Brackets
What are the ATO tax rates in 2026?
Here are the ATO tax rates for 2025-26.
Australian Non-Residents (2025-2026)
- Income up to $135,000: 30% tax on all income.
- Income between $135,001 and $190,000: $40,500 plus 37% tax on income over $135,000.
- Income over $190,000: $60,850 plus 45% tax on income over $190,000.
Australian Residents (2025-2026)
- For income up to $18,200, no tax is payable.
- For income between $18,201 and $45,000, you’ll pay 16% tax on the amount over $18,200.
- For income between $45,001 and $135,000, you’ll pay $4,288 plus 30% tax on the amount over $45,000.
- For income between $135,001 and $190,000, you’ll pay $31,288 plus 37% tax on the amount over $135,000.
- For income over $190,000, you’ll pay $51,638 plus 45% tax on the amount over $190,000.
The ATO is responsible for determining which tax bracket you fall under based on the information in your tax return. As your income increases and reaches each threshold, you will be required to pay a higher percentage of tax on the portion of your earnings that exceed that threshold.
How much tax will I get back if I earn $60,000?
To determine your exact tax refund, we’d need more information about your specific circumstances, such as deductions, credits, and whether you’re a resident or non-resident.
However, we can give you a general idea. If you’re an Australian resident earning $60,000, you would pay tax on the amount over $18,200. This means you’d pay 16% tax on $31,800, which equals $5,088.
If you’re an Australian non-resident earning $60,000, you would pay 30% tax, which equals $18,000.
To get an accurate estimate, you can use the ATO’s Tax Calculator or consult with a tax professional.
What is taxable income?
Taxable income is the portion of your income that is subject to income tax in Australia. It’s calculated by subtracting allowable deductions from your gross income.
Gross income includes all your income sources, such as:
- Salary and wages
- Investment income
- Business income
- Rental income
Allowable deductions are expenses that you can claim to reduce your taxable income. These can include:
- Work-related expenses
- Investment losses
- Medical expenses
- Donations
By reducing your taxable income, you can lower the amount of tax you owe.
It’s important to note that tax laws can be complex, and specific deductions and rules may apply. It’s always advisable to consult with a tax professional for personalised advice.
How do I calculate taxable income?
Calculate your taxable income by adding all your assessable income, such as rental property profits, salary, dividends, and subtracting any income-related expenses.
What will income tax rates be in 2026 in Australia?
Here are the income tax rates for 2025-26 in Australia.
Tax Rates for Australian Non-Residents (2025-2026)
- Income up to $135,000: 30% tax on all income.
- Income between $135,001 and $190,000: $40,500 plus 37% tax on income over $135,000.
- Income over $190,000: $60,850 plus 45% tax on income over $190,000.
Tax Rates for Australian Residents (2025-2026)
- For income up to $18,200, no tax is payable.
- For income between $18,201 and $45,000, you’ll pay 16% tax on the amount over $18,200.
- For income between $45,001 and $135,000, you’ll pay $4,288 plus 30% tax on the amount over $45,000.
- For income between $135,001 and $190,000, you’ll pay $31,288 plus 37% tax on the amount over $135,000.
- For income over $190,000, you’ll pay $51,638 plus 45% tax on the amount over $190,000.
The ATO is responsible for determining which tax bracket you fall under based on the information in your tax return. As your income increases and reaches each threshold, you will be required to pay a higher percentage of tax on the portion of your earnings that exceed that threshold.
Is Australia a highly taxed country?
Australia’s marginal tax rate system is progressive, meaning that as income increases, the percentage of tax paid also increases. However, compared to other countries, the marginal tax rate system protects low-income earners in Australia from paying higher taxes that they may not be able to afford.
What is the tax-free threshold in Australia?
The tax-free threshold in Australia is $18,200. This is applicable for Australian residents. Aussie expats need to confirm their residency status to see if they’re eligible.
How does marginal tax work in Australia?
Australia uses a progressive tax system, meaning the marginal tax rate increases as income rises. You only pay the higher rate on income that falls within the respective tax bracket. For example, income over $45,000 is taxed at 30%, while income over $120,000 is taxed at 37%.
Do non-residents pay the Medicare levy?
Non-residents are generally not subject to the Medicare levy unless they qualify for Medicare benefits. However, expats should confirm their individual circumstances with the ATO.
