Income tax (rates / brackets)

Australia's income tax system operates on a progressive bracket structure where residents pay tax on assessable income at rates determined by their annual earnings. The current financial year (2024–25) establishes five main tax brackets: individuals earning up to AUD 18,200 pay no tax; those earning AUD 18,201 to AUD 45,000 pay 19 percent; income between AUD 45,001 and AUD 120,000 is taxed at 32.5 percent; earnings from AUD 120,001 to AUD 180,000 face a 37 percent rate; and income exceeding AUD 180,000 is taxed at 45 percent. Additionally, a Medicare levy of 2 percent applies to most taxpayers, with certain exemptions and reductions available.

The Australian Taxation Office (ATO), established under the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997, administers these rates and brackets. The ATO regularly adjusts tax-free thresholds and bracket boundaries to account for inflation, typically announced in the federal budget each May.

From 1 July 2024, the government implemented the Stage 3 tax cuts, which reduced the top marginal rate from 45 percent to 39 percent for high earners and restructured lower brackets to provide relief across income levels. This change significantly altered the tax landscape for employees and contractors.

Employers and payroll teams must withhold tax from employee wages according to current ATO tax tables and rates. Accurate withholding depends on employee tax file numbers (TFNs) and declared tax offsets. Annual reconciliation occurs through the tax return process, where individuals report total income and claim deductions. Payroll systems must be updated immediately when bracket changes take effect to ensure compliance.