Australian Income Tax Brackets Explained: 2024-25 Rates and How They Work

Australia uses a progressive tax system - you pay different rates on different portions of your income, not a flat rate on everything you earn. The brackets for the 2024-25 financial year (1 July 2024 to 30 June 2025) include the Stage 3 tax cut changes that took effect from 1 July 2024.

• $0 to $18,200: 0% - the tax-free threshold; every resident Australian pays no income tax on the first $18,200 of income
• $18,201 to $45,000: 19 cents per dollar; a $45,000 earner pays $5,092 in income tax on the $26,800 above the threshold
• $45,001 to $135,000: 32.5 cents per dollar; this bracket now extends to $135,000 following the Stage 3 changes - previously it ended at $120,000
• $135,001 to $190,000: 37 cents per dollar; the 37% bracket was previously $120,001 to $180,000 - both the lower and upper thresholds shifted upward from 1 July 2024
• $190,001 and above: 45 cents per dollar; the top rate was previously applied from $180,001 - a $10,000 increase to the threshold from Stage 3
• These are rates on each portion of income, not on total income: a person earning $200,000 does not pay 45% on all $200,000; they pay 0% on the first $18,200, then 19% on the next $26,800, then 32.5% on the next $90,000, then 37% on the next $55,000, then 45% on $10,000
• Stage 3 summary: the changes raised the threshold at which 37% begins (from $120,001 to $135,001) and shifted the top rate start from $180,001 to $190,001; the 32.5% bracket expanded significantly, benefiting middle-income earners most

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The single most common tax misconception in Australia is confusing the marginal tax rate with the average tax rate. Many people believe a pay rise will leave them worse off because it pushes them into a higher bracket - this is a myth.

• Marginal tax rate: the rate applied to the next dollar of income earned; someone earning $100,000 has a marginal rate of 32.5% - any additional dollar earns 67.5 cents after tax
• Average (effective) tax rate: total tax paid divided by total income; on a $100,000 income, total income tax is approximately $22,967 - an average rate of 22.97%, far below the 32.5% marginal rate
• Why a pay rise never makes you worse off: a tax bracket applies only to income above its threshold; a $5,000 pay rise from $130,000 to $135,000 (crossing from the 32.5% to 37% bracket on the last $1) means the extra income is taxed at 32.5% (for the first $5,000 up to $135,000) and then 37% only on any income above $135,000 - you keep more than you had before
• Practical calculation at $100,000 income: $0 tax on $18,200 + 19% on $26,800 ($5,092) + 32.5% on $55,000 ($17,875) = $22,967 income tax; plus 2% Medicare Levy ($2,000) = $24,967 total; take-home pay is $75,033
• Practical calculation at $150,000 income: $22,967 on first $100,000 + 32.5% on $35,000 ($11,375) + 37% on $15,000 ($5,550) = $39,892 income tax; plus 2% Medicare Levy ($3,000) = $42,892 total; average rate including Medicare = 28.6%
• Salary sacrificing into super reduces taxable income - and therefore reduces your average tax rate, not just your marginal rate; $10,000 into super at 32.5% marginal rate reduces take-home pay by $6,750 (cost after tax saving) while adding $8,500 to super (the $10,000 less 15% contributions tax)

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The Medicare Levy is a separate charge on top of income tax that funds the public health system. The Medicare Levy Surcharge is an additional charge for higher earners without private hospital insurance.

• Medicare Levy: 2% of taxable income for most Australian residents; added to income tax in your annual tax return; withheld by employers throughout the year
• Medicare Levy low-income threshold: singles earning below $26,000 in 2024–25 pay no Medicare Levy; the levy phases in at 10% of the income between $26,000 and $32,500 before reaching the full 2% rate
• Medicare Levy exemption: some categories are exempt (certain foreign residents, those with a Medicare Levy Exemption Certificate); medical conditions that prevent full Medicare benefit entitlement may qualify
• Medicare Levy Surcharge (MLS): applies on top of the Medicare Levy for those earning above income thresholds who do not hold appropriate private hospital cover; single income threshold $93,000 (MLS 1.0%), $108,000 (1.25%), $144,000 (1.5%)
• MLS and reportable fringe benefits: income for MLS purposes includes taxable income, total reportable fringe benefits, and reportable employer super contributions - salary sacrificed amounts that generate an RFBA count toward MLS even if they reduce taxable income
• Avoiding MLS with private hospital cover: singles earning above $93,000 should compare the MLS cost against the cost of a basic hospital (Bronze) cover; often a Bronze hospital policy at $600–$900 per year costs less than the 1.0% MLS on income above $93,000 - saving approximately $0–$930 depending on income and cover cost
• Family Medicare Levy: families have a combined income threshold below which the levy is reduced or waived; for two adults with children the threshold is higher than for singles - check the ATO threshold tables for the relevant year

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The Low Income Tax Offset (LITO) significantly reduces the effective tax rate for lower-income Australians, effectively raising the income level at which you start paying tax.

• LITO maximum: $700 for taxable income at or below $37,500 per year
• LITO phase-out 1: reduces by 5 cents per dollar for income between $37,500 and $45,000 - so at $45,000 LITO is $325
• LITO phase-out 2: reduces by 1.5 cents per dollar between $45,000 and $66,667 - LITO reaches $0 at $66,667
• Combined effect with tax-free threshold: LITO combined with the $18,200 tax-free threshold means a single Australian resident earning $21,884 pays no net income tax (the LITO offsets the small 19% liability on income between $18,200 and $21,884)
• LITO does not reduce Medicare Levy: even if LITO eliminates your income tax entirely, you still pay 2% Medicare Levy on income above the low-income Medicare Levy threshold ($26,000 for singles)
• LITO automatically applied: the ATO calculates and applies the LITO when you lodge your tax return; it is also factored into the PAYG withholding tables employers use to calculate recurring tax withheld - no separate claim is required

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Understanding exactly where your income sits in the bracket structure reveals specific strategies to reduce your tax through super, deductions, and timing.

• Salary sacrifice to avoid bracket creep: if your income is just above a bracket threshold, salary sacrifice into super reduces taxable income below that threshold - for example, salary sacrificing $15,001 on a $150,001 income drops the marginal rate from 37% to 32.5% on the sacrificed amount
• Bracket thresholds as decision points: $45,001 (19% to 32.5%), $135,001 (32.5% to 37%), and $190,001 (37% to 45%) - the value of a $1,000 deduction jumps substantially at each threshold; deductions are worth more the higher your income
• The Div 293 threshold: concessional super contributions are taxed at 15% inside super; but for those earning above $250,000 (taxable income plus super contributions), an additional 15% Division 293 tax is levied - total contributions tax of 30%, still lower than 45% marginal rate but reducing the super tax advantage
• Non-resident tax rates: Australians who are non-residents for tax purposes pay 32.5% from the first dollar of Australian income (no tax-free threshold, no LITO); 37% from $135,001 and 45% from $190,001; the Medicare Levy also does not apply
• HECS income definition: for HECS repayment threshold purposes, income includes taxable income plus total net investment losses, reportable fringe benefits, and reportable employer super contributions - not the same as taxable income alone; salary sacrifice into super does not reduce HECS repayment income in the same way it reduces tax
• Tax return timing: if your income is likely to fall in the new financial year (job change, reduction in hours, parental leave), deferring income or bringing forward deductions from July to June can meaningfully shift the tax outcome - discuss timing strategies with a tax agent before 30 June

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Understanding your bracket position is the starting point for every tax-reduction strategy - from salary sacrifice into super to timing your deductions. Getting it right pays dividends year after year.

Roopon members access partner discounts on tax return services and financial advice from qualified professionals - plus FREE included prize-draw entries per your plan and published campaign terms. Join from $19.99/month at roopon.com.au.

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