Australia Income Tax Guide 2026: Rates, Brackets & How to Pay
Understanding how Australia's income tax system works can save you money and help you avoid costly mistakes when lodging your return with the Australian Taxation Office (ATO). For the 2025β26 financial year, tax rates range from 0% on income up to A$18,200 all the way to 45% on earnings above A$190,000, with the Medicare levy adding another 2% on top for most Australians. Whether you are a salary earner on PAYG withholding, a sole trader, or an investor with rental income, this guide breaks down every bracket, offset, and deduction you need to know.
lightbulbKey Takeaways
- check_circleThe tax-free threshold is A$18,200 β income below this amount attracts zero income tax for Australian residents.
- check_circleThe Medicare levy of 2% applies to most taxpayers on top of their marginal income tax rate, funding the public health system.
- check_circleThe Low Income Tax Offset (LITO) can reduce the tax bill of eligible low-income earners by up to A$700 in 2025β26.
- check_circleYou can lodge your tax return online via myTax through myGov, the ATO app, or through a registered tax agent β the deadline is 31 October 2026 for self-lodgers.
ATO Income Tax Brackets 2025β26
Australia uses a progressive marginal tax system, meaning you only pay the higher rate on the portion of income that falls within each bracket β not on your entire income. For Australian residents in the 2025β26 financial year (1 July 2025 to 30 June 2026), the ATO applies the following rates: 0% on the first A$18,200; 19% on income between A$18,201 and A$45,000; 32.5% on income between A$45,001 and A$135,000; 37% on income between A$135,001 and A$190,000; and 45% on every dollar above A$190,000.
These brackets reflect the Stage 3 tax cuts that took effect from 1 July 2024, which restructured and broadened the 32.5% band significantly, delivering relief to a wide range of middle-income earners. The changes mean someone earning A$100,000 now pays noticeably less tax than they did under the previous bracket structure, with a larger share of their income taxed at 32.5% rather than 37%.
Non-residents of Australia for tax purposes do not access the tax-free threshold and face different rates starting at 30% from the first dollar of Australian-sourced income. Working holiday makers (visa subclasses 417 and 462) are taxed at a flat 15% on the first A$45,000 earned, then at marginal resident rates thereafter. Always confirm your residency status with the ATO or a registered tax agent if you are unsure which rate schedule applies to you.
Medicare Levy, LITO, and Other Offsets
On top of income tax, most Australian residents pay the Medicare levy, currently set at 2% of taxable income. This levy funds Medicare, Australia's universal health insurance scheme. Low-income earners may be exempt or pay a reduced levy β for 2025β26, the full exemption threshold for singles is approximately A$26,000, with a shade-in zone applying before the full 2% kicks in. High-income earners without private hospital cover may also be subject to the Medicare Levy Surcharge (MLS) of between 1% and 1.5%, administered alongside the tax return.
The Low Income Tax Offset (LITO) provides a tax reduction of up to A$700 for individuals with taxable income up to A$37,500. The offset phases out progressively: it reduces by 5 cents per dollar on income between A$37,500 and A$45,000, then by 1.5 cents per dollar between A$45,000 and A$66,667, at which point it phases out entirely. Offsets are applied automatically by the ATO when you lodge your return β you do not need to claim them separately.
Many Australians ask about the Low and Middle Income Tax Offset (LMITO), which provided an additional reduction of up to A$1,500 during the COVID-era financial years 2018β19 through 2021β22. The LMITO was not extended beyond 30 June 2022 and does not apply to the 2025β26 return. If you are comparing your current refund to those received in prior years, the absence of the LMITO is likely the main reason your refund may appear smaller.
PAYG Withholding Explained
Pay As You Go (PAYG) withholding is the system by which Australian employers deduct tax from an employee's wages before paying them, then remit those amounts to the ATO on the employee's behalf. When you start a new job, you complete a Tax File Number (TFN) declaration form (or its digital equivalent through Single Touch Payroll) advising your employer whether to apply the tax-free threshold and any other relevant details. Your employer uses ATO-published withholding tables to calculate how much to hold back from each pay cycle.
At the end of the financial year, your employer provides a payment summary or income statement (now visible directly in myGov via Single Touch Payroll) showing total gross income and total tax withheld. When you lodge your tax return, the ATO compares the tax withheld against your actual tax liability. If more tax was withheld than owed β for example because you have eligible deductions β you receive a refund. If too little was withheld, you will owe the difference.
Sole traders, contractors, and those with investment income typically manage their tax obligations differently. Sole traders may enter the PAYG instalment system, making quarterly payments to the ATO based on estimated annual income, avoiding a large lump-sum tax bill at year end. If you have multiple income streams β salary, rental income, and dividends, for example β it is worth reviewing your withholding and instalment amounts during the year to avoid surprises.
How to Lodge Your Australian Tax Return
The most popular way to lodge is via myTax, the ATO's free online tool accessible through your myGov account. myTax is pre-filled with data from your employer (via Single Touch Payroll), banks, private health insurers, and government agencies, so much of your return populates automatically. You can also use the ATO app on your smartphone for simpler returns. The deadline for self-lodging is 31 October 2026 for the 2025β26 income year β missing this deadline can attract a failure-to-lodge penalty.
If your tax affairs are more complex β you have a rental property, run a business, have foreign income, or want to maximise deductions οΏ½οΏ½ engaging a registered tax agent is a cost-effective option. Tax agent fees are themselves tax-deductible in the year you pay them. Registered agents also receive an extended lodgment program with later deadlines, and they carry professional obligations regulated under the Tax Practitioners Board (TPB), providing an added layer of consumer protection.
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See Best Taxes βKey Tax Deductions Every Australian Should Know
Claiming legitimate deductions reduces your taxable income, which directly lowers your tax bill. Work-from-home (WFH) expenses remain one of the most commonly claimed deductions. The ATO's revised fixed rate method allows you to claim 67 cents per hour worked from home to cover electricity, internet, phone, and stationery costs β you must keep a record of actual hours worked, such as a timesheet or diary log. Alternatively, you can use the actual cost method, calculating the precise work-related portion of each expense, which can yield a higher deduction if your home office costs are significant. Vehicle expenses are deductible when you use your own car for work-related travel (not the ordinary commute from home to your regular workplace). You can use the cents-per-kilometre method β 88 cents per kilometre for 2025β26, up to 5,000 km β or the logbook method for higher-mileage claimants. Tools and equipment purchased for work are deductible; items costing A$300 or less can be claimed immediately, while more expensive items must be depreciated over their effective life. Self-education expenses β course fees, textbooks, and travel to classes β are deductible when the study maintains or improves skills in your current role, though there is no longer a A$250 reduction applied to these claims following legislative changes. Charitable donations of A$2 or more to ATO-endorsed Deductible Gift Recipients (DGRs) are also fully deductible β keep your receipts.
Negatively geared investment properties continue to be a significant deduction for many Australians. Where your rental property expenses β including interest on the investment loan, council rates, property management fees, repairs, and depreciation β exceed your rental income, the net loss can generally be offset against your other taxable income, reducing your overall tax liability. This strategy is legal, widely used, and has been a cornerstone of Australian property investment for decades, though it carries investment risk and should be considered as part of a broader financial plan rather than solely as a tax strategy. Superannuation contributions also offer tax advantages worth understanding: employer contributions (set at 11% of ordinary time earnings in the 2025β26 year under the Superannuation Guarantee) are taxed at just 15% inside the fund rather than at your marginal rate. Voluntary concessional (before-tax) contributions up to the annual cap of A$30,000 are taxed at 15% in the fund, which can represent a significant saving for those in the 37% or 45% tax brackets.
Frequently Asked Questions
What is the tax-free threshold in Australia for 2025β26?
The tax-free threshold is A$18,200, meaning Australian resident individuals pay zero income tax on the first A$18,200 of taxable income each financial year. You should claim the tax-free threshold with your primary employer by submitting a TFN declaration. If you have a second job, you generally should not claim the threshold with that employer, as this can result in a tax debt at year end.
How much is the Medicare levy and who pays it?
The Medicare levy is 2% of your taxable income and applies to most Australian residents, funding access to Medicare services. Low-income earners below approximately A$26,000 (singles, 2025β26) may be fully or partially exempt. Higher-income earners without qualifying private hospital cover may also owe the Medicare Levy Surcharge (MLS) of 1% to 1.5% on top of the standard levy.
Is the Low and Middle Income Tax Offset (LMITO) still available in 2026?
No β the LMITO ended after the 2021β22 financial year and is not available for 2025β26 tax returns. The Stage 3 tax cuts, which restructured the income tax brackets from 1 July 2024, were designed in part to deliver ongoing structural relief that goes beyond what the temporary LMITO provided. The Low Income Tax Offset (LITO) of up to A$700 does still apply for eligible low-income earners.
Can I claim working-from-home expenses on my Australian tax return?
Yes β you can use the ATO's revised fixed rate method of 67 cents per hour worked from home, covering electricity, internet, phone use, and stationery. You must maintain records of your actual hours worked at home, such as a timesheet, diary, or roster. Alternatively, you can use the actual cost method to claim the precise work-related portion of each expense, which may result in a higher deduction if your costs are substantial.
What is the deadline to lodge my 2025β26 tax return?
If you are lodging your own tax return through myTax on myGov or the ATO app, the deadline is 31 October 2026. If you use a registered tax agent, you may be entitled to a later lodgment date under the tax agent lodgment program β however, you generally need to be on the agent's books before 31 October to access this extension. Failing to lodge on time can attract a failure-to-lodge penalty from the ATO.
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