Tax Brackets Australia 2025–26: Every Rate, Threshold and What You Actually Pay

Watch: Australian Tax Brackets 2025-26 Explained

Australia Tax Brackets for 2025–26 (Current Rates)

Australian residents pay income tax on a progressive scale — meaning the rate that applies increases as income rises, and each rate only applies to the income within that bracket, not your whole income. The rates below apply for the 2025–26 financial year (1 July 2025 to 30 June 2026) and were introduced by the Stage 3 tax cuts from 1 July 2024.

Note: These rates are for Australian tax residents. Non-residents do not receive the tax-free threshold and are taxed at 32.5% from the first dollar up to $135,000, then 37%, then 45%.

How Australian Tax Brackets Work: Marginal vs Effective Rate

This distinction trips up a lot of people, and it matters for your planning.

Your marginal tax rate is the rate on the next dollar you earn — the rate for the bracket your income sits in. If you earn $80,000, your marginal rate is 30%, because your income falls between $45,001 and $135,000.

Your effective tax rate (also called your average rate) is your total tax bill divided by your total income. It is always lower than your marginal rate because the lower brackets are still taxed at lower rates.

The key takeaway: most Australians pay a significantly lower effective rate than their marginal rate. Someone earning $90,000 is not paying 30% of $90,000 — they are paying 30% only on the $44,999 above the $45,000 threshold. The rest is taxed at lower rates or not at all.

The Medicare Levy: Australia's Additional 2% Tax

On top of income tax, most Australians pay the Medicare levy of 2% of taxable income. This funds Australia's public health system. At $80,000 income, that's an extra $1,600 per year.

The levy does not apply to low-income earners. For 2024–25, the low-income threshold was approximately $26,000 for singles ($43,000 for families). Below that threshold, no Medicare levy applies. Between the threshold and a phase-in ceiling, a reduced rate applies.

There is also the Medicare Levy Surcharge (MLS) — an additional 1% to 1.5% that applies to higher-income earners who do not hold private hospital cover:

• Income $93,001–$108,000: MLS of 1.0%
• Income $108,001–$144,000: MLS of 1.25%
• Income $144,001+: MLS of 1.5%

For many higher-income earners, taking out a basic private hospital policy costs less than the MLS, making it a simple calculation to hold cover.

The Low Income Tax Offset (LITO) and What It Means for Your Actual Bill

The Low Income Tax Offset reduces your tax payable directly — it is not a deduction from income, but a reduction in tax itself. For 2025–26:

• Maximum LITO of $700 for taxable incomes up to $37,500
• LITO phases down between $37,500 and $45,000 (reduces by 5c per $1 over $37,500)
• Further reduction between $45,000 and $66,667 (reduces by 1.5c per $1 over $45,000)
• Zero LITO for incomes above $66,667

The practical effect: a resident individual with income of $21,884 or less pays zero income tax, even though the 19% rate technically applies above $18,200. The LITO covers that gap. The effective tax-free threshold with LITO is approximately $21,884.

What Changed: Stage 3 Tax Cuts vs Previous Australian Tax Rates

The Stage 3 tax cuts, which took effect from 1 July 2024 and continue into 2025–26, significantly changed the tax brackets. Here's what the Albanese government's revised Stage 3 actually delivered:

The clearest winner in the Stage 3 redesign was middle-income earners — people earning between $37,001 and $45,000 saw their marginal rate drop from 32.5% to 19%, a 13.5 percentage point reduction. Trades business owners, allied health practitioners and other professionals earning $80,000–$120,000 also benefitted from the 2.5% rate reduction in that range.

Australian Tax Rates for Companies: Different Rules Apply

If you operate through a company structure, individual income tax brackets don't apply to the company's profit. Companies pay a flat corporate tax rate:

• Base rate entity (small business): 25% — applies when aggregated turnover is under $50 million and 80% or more of assessable income is passive income or from trading activities
• Standard company rate: 30% — applies to companies that don't qualify as base rate entities

The distinction matters because a sole trader in the 30% bracket and a small company both pay 30% on profit — but the company rate does not include Medicare levy, does not get the tax-free threshold, and profits retained in the company are taxed at 25% rather than the individual's marginal rate. This makes a company structure attractive for retained earnings when the owner's personal marginal rate is above 25%.

However, when you extract money from the company as a salary, you pay PAYG withholding at your individual marginal rates. Dividends are franked with the company tax already paid, so there's a tax credit — but the overall tax position depends on the distribution method, your other income, and the franking rate.

There is no single right answer on structure. If your business profit is above roughly $80,000–$100,000 and growing, it is worth modelling both scenarios with a registered tax agent.

Australia's Tax Percentage in International Context

Australia's top marginal rate of 45% (plus 2% Medicare levy) places it among the higher-rate developed economies. However, effective tax rates tell a different story. The Organisation for Economic Co-operation and Development (OECD) data shows Australia's average effective tax rate on labour income sits comfortably in the mid-range — lower than the UK, Germany and France, and comparable to New Zealand and Canada.

The features that make Australia relatively manageable in practice:

• The $18,200 tax-free threshold (extended effectively to ~$21,884 with LITO)
• The large 30% bracket covering $45,001–$135,000 — a wide middle range at a flat rate
• Superannuation contributions taxed at only 15% inside super (concessional contributions)
• The small company rate of 25%, which incentivises reinvestment in growth
• Immediate asset write-off provisions for eligible small business assets

For a small business owner, the comparison that matters most is not Australia vs Germany — it's sole trader vs company, and income vs superannuation contributions, and this financial year vs next. Those are the levers available to you.

How to Use Australia's Tax Brackets to Plan Your Finances

Understanding which bracket you sit in opens up several planning opportunities:

Concessional Super Contributions

Money contributed to superannuation as a concessional (before-tax) contribution is taxed at 15% inside the fund instead of at your marginal rate. If your marginal rate is 30%, a $10,000 super contribution saves you 15% net — $1,500. The annual concessional contributions cap for 2025–26 is $30,000 (including employer contributions). If you are a sole trader making super contributions, these are typically claimed as a tax deduction.

Defer Income Near Year End

If your income is sitting just above a bracket threshold in May–June, delaying an invoice or a payment until after 30 June can push that income into the next financial year, potentially at a different marginal rate.

Bring Forward Deductions

The flip side: if you expect to earn more next year, bringing forward deductible expenses into this financial year — prepaying subscriptions, purchasing equipment before 30 June — reduces this year's taxable income while the deduction is still at your current marginal rate.

Trust Distributions and Income Splitting

If you operate through a family trust, distributions can be allocated to beneficiaries who are in lower tax brackets. This is a legitimate strategy under Australian law but requires careful management of trust deed requirements and the ATO's trust tax guidance (PCG 2022/2 and TD 2022/11 are the key documents). This is an area where professional advice is not optional — it is necessary.

Common Mistakes Australian Small Business Owners Make with Tax Brackets

The most common errors we see at True Tally across our bookkeeping clients:

• Treating the marginal rate as the effective rate — leading to over-provisioning or under-provisioning for tax.
• Not adjusting PAYG instalments when business income changes significantly year to year. The ATO's instalment amount is based on last year's income. If this year is very different, varying the instalments prevents either a large bill or an interest-free loan to the ATO.
• Forgetting the 2% Medicare levy in cash flow projections. $30,000 tax bill plus $3,000 Medicare levy is a meaningful difference when you haven't provisioned for it.
• Missing the 30 June super contribution deadline for a concessional deduction in the current year. Contributions must be received by the super fund, not just sent, before 30 June.
• Not separating business and personal transactions in Xero — making it impossible to accurately calculate taxable income without an expensive reconciliation job at tax time.

What a Registered BAS Agent Can Help You With

True Tally Bookkeeping is a Registered BAS Agent (Reg. 26360186) and Xero Certified Advisor. While income tax returns are lodged by a registered tax agent (different credential), the bookkeeping we deliver year-round sets the foundation for an accurate, low-stress tax return:

• Xero reconciliations that separate business income and expenses precisely
• Payroll processed correctly so PAYG withholding, super and STP are all accurate and on time
• BAS lodgements filed quarterly or monthly so you know your GST position
• Monthly management reports so you can see taxable income tracking before year end and make proactive decisions
• Alerts when your PAYG instalment should be varied

If your books are messy, you are either overpaying tax (because deductions are missed) or underpaying (because income is unreconciled) — and you won't know which until June. Clean books mean you can use the tax bracket structure to your advantage, not just survive it.

Frequently Asked Questions: Australian Tax Brackets