Trying to figure out your tax bill can be a headache, especially when the rules keep changing. If you’re working in Australia and want to know what the income tax slab for AY 2025-26 means for your pay packet, you’re in the right place. This guide breaks down the basics, from tax-free thresholds to the latest rates, and even some tips to help you keep more of your money. Let’s keep it simple and look at what you really need to know for the coming financial year.
Key Takeaways
- The income tax slab for AY 2025-26 keeps the tax-free threshold at $18,200 for residents, so you won’t pay tax on income below this amount.
- Tax rates are progressive, which means only the part of your income above each threshold is taxed at higher rates, not your whole income.
- There haven’t been big changes to the income tax slab for AY 2025-26, but future cuts are already planned for the years ahead.
- Don’t forget about the Medicare Levy, which is usually 2% on top of your tax, and can change if your income is low or you’re a family.
- Offsets like the Low Income Tax Offset (LITO) and deductions can lower your tax bill, so make sure you claim what you’re entitled to.
Key Features of the Income Tax Slab for AY 2025-26
Current Income Brackets and Rates
From 1 July 2025, Australia’s resident income tax rates have been overhauled, reflecting several adjustments. The brackets are structured to ensure that those earning more pay a progressively higher rate, but only on the portion of income within each bracket.
| Taxable income | Rate | Tax payable on this income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | 45% | $51,638 plus 45c for each $1 over $190,000 |
These do not include Medicare Levy or offsets like LITO.
Impact of Progressive Taxation
The structure is progressive, so as income rises, the rate on each extra dollar increases. What often confuses people is the mechanics:
- Only money earned above each threshold gets taxed at the higher rate, not your whole salary.
- Most Australians benefit from the tax-free threshold, kicking in automatically for residents.
- Tax policy aims to fund services without overburdening lower and middle-income earners.
Only the portion of your income above each threshold is taxed at the higher rate, not your entire income. For example, if you cross into the 30% bracket, only the income that sits above $45,000 is taxed at 30% – the rest remains taxed at the lower brackets.
Recent Changes in Tax Policy
There have been significant adjustments for the 2025–26 year, which you can compare with previous averages and changes in Australian income figures:
- The lowest tax rate has dropped to 16% for incomes between $18,201 and $45,000, down from 19% previously.
- The 32.5% rate has reduced to 30%, while the upper brackets now only kick in at higher incomes ($135,000 for 37%, $190,000 for 45%).
- These changes aim to provide broad tax relief, especially to those in middle-income brackets.
Key highlights include:
- More take-home pay for most middle-income earners.
- Expanded thresholds, meaning you keep more money before moving to a higher tax rate.
- Simplified structure, making it easier to estimate your tax obligations through the year.
The stage 3 reforms have rebalanced how different slices of income are taxed, affecting workers, business owners and anyone earning Australian wages. Staying up to date is important, as upcoming policy tweaks are already legislated for 2026 and 2027.
Australian Resident Income Tax Rates for AY 2025-26
One thing that makes the Australian income tax system a bit less painful is the tax-free threshold. For the 2025–26 assessment year, if you’re an Australian resident for tax purposes, you pay no tax on your first $18,200 of income. That means the tax meter doesn’t even start ticking until you earn more than this amount.
- If you don’t live in Australia for the entire year, this threshold may be reduced.
- Any income below $18,200 is not taxable.
- The tax-free threshold is only for Australian residents; non-residents don’t receive this benefit.
The tax-free threshold helps lower-income earners keep more of their money before tax kicks in, and it’s especially helpful for casual or part-year workers straight out of uni.
From 1 July 2025 to 30 June 2026, the tax system works on a sliding scale – the more you earn, the higher the percentage you’re taxed on that extra bit. The slabs for Australian residents are as follows:
| Taxable Income | Tax Rate | Tax Payable |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | 45% | $51,638 plus 45c for each $1 over $190,000 |
This basic table covers federal tax only; don’t forget that things like the Medicare Levy are extra costs on top of your tax bill. For up-to-date tax rates and detailed thresholds, check out the current income brackets and rates.
Income tax isn’t just a flat rate. Instead, as you move through each bracket, only the part of your income that sits in that bracket gets taxed at its rate. Here’s how tax applies, step by step:
- The first $18,200 is tax-free for residents.
- Earnings between $18,201 and $45,000 are taxed at 16%.
- For income between $45,001 and $135,000, the tax rate is 30% (with the fixed amount from the previous bracket added).
- For earnings $135,001 to $190,000, it’s 37%.
- Anything above $190,000 cops a 45% tax rate.
Let’s look at a quick scenario: If your taxable income is $70,000, you’d pay 0% on your first $18,200, 16% on the next bit up to $45,000, then 30% on what’s left up to $70,000, all added together for your total tax liability before offsets and deductions.
Every person’s tax exact number is unique, depending on how their income fits across these slabs and if they’re eligible for offsets or deductions. Always remember that the tax you actually pay is usually less than the headline rate once you factor in the offsets and other rebates.
Special Taxation Scenarios in the AY 2025-26 Slab
When it comes to Australian income tax, not everyone is taxed in the same way. There are a few groups who face special rules—sometimes higher rates, sometimes unique calculations. Let’s unpack how these different situations work in practice.
Non-Resident Tax Rates
Australian non-residents don’t get the benefit of the tax-free threshold. Every dollar earned by a non-resident is taxed from the first dollar. If you’re a non-resident for tax purposes in 2025-26, here’s how the rates generally look:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $135,000 | 32.5% |
| $135,001 – $190,000 | 37% |
| $190,001 and over | 45% |
- No tax-free threshold applies at all for non-residents.
- Medicare Levy does not apply to non-residents.
- Deductions may be limited compared to residents.
Rules for Working Holiday Makers
If you’re visiting Australia on a Working Holiday Visa (subclass 417 or 462), your income is taxed at a flat rate for income from Australian sources. The rules as of 2025-26 are simple yet strict:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $45,000 | 15% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001 and over | 45% |
- This special rate applies only to the income earned as a working holiday maker.
- You still need to lodge an Australian tax return each year.
- The tax-free threshold is not available in this case either.
Treatment of Minors’ Income
Income earned by those under 18 is often taxed differently, especially if it comes from sources like family trusts or investments, not work. Here’s what you need to know:
- Unearned income (like trust distributions or investment returns) is usually taxed at higher rates to discourage income splitting.
- There are some exceptions—genuine work income, compensation payments, and certain other types might get standard adult rates.
- Special tax rates for minors:
- First $416: Tax free
- Next $417: Taxed at 66%
- Anything above $833: Taxed at 45%
If you’re a parent or guardian, it’s very important to keep these rules in mind when managing family finances, since getting it wrong can mean a heavy tax bill on pretty modest earnings. The patterns of wealth and income affect families differently in Australia, with factors like changes in family income making these details especially relevant for many households.
It’s always wise to double-check your individual situation, since the rules can be strict—especially if you’re moving between categories or receiving different types of income within a single year.
Tax Offsets and Deductions Relevant to 2025-26
Low Income Tax Offset (LITO)
LITO helps low and middle-income Australians pay less tax, with the biggest benefit for those on smaller incomes. For 2025-26, this offset can reduce your tax bill by up to $700 if your taxable income is less than $37,500. The offset then gradually shrinks until it cuts out entirely once your taxable income goes above $66,667.
| Taxable Income | LITO Amount |
|---|---|
| $0 – $37,500 | $700 (max) |
| $37,501 – $45,000 | Tapers down |
| $45,001 – $66,667 | Reduces to $0 |
- You don’t have to claim LITO – the ATO applies it automatically when you lodge your return.
- LITO comes on top of the tax-free threshold, so some people pay no tax at all.
- LITO does not reduce Medicare Levy — that’s separate.
The Low Income Tax Offset can mean you’ll owe no income tax if you keep your taxable income modest.
Seniors and Pensioners Tax Offset (SAPTO)
This tax offset is for eligible seniors and pensioners, and it really makes a difference for older Australians trying to stretch their retirement income. SAPTO can either lower your tax bill by hundreds of dollars or, in some cases, wipe it out completely. To qualify, you need to meet age and pension eligibility rules, and your rebate income can’t be above the cut-off.
- SAPTO combines with LITO, which sometimes means you don’t even have to lodge a tax return.
- Income tests and age limits apply, so not everyone over 65 qualifies.
- There are different SAPTO thresholds for singles, couples, and those separated by illness.
SAPTO plays a key role for older Australians, making retirement income go a bit further.
Allowable Deductions for Individuals
Deductions take the edge off your taxable income by letting you subtract certain costs you’ve paid to earn your income. Here’s what most people can claim if it relates to their work or investments:
- Work-related expenses like uniforms, tools, and car travel (if you have to use your car for work, not just commuting).
- Self-education costs as long as the study ties directly to your current job.
- Donations to registered charities (they add up if you give regularly).
- Interest charged on money borrowed to earn investment income.
- Tax agent or accountant fees – yep, even the cost of getting your return done is deductible.
You’ll need records. If you’re not sure about a deduction, the ATO website has clear checklists, or talk to your tax agent before you claim.
Properly tracking eligible deductions can trim your tax payable and sometimes lead to a bigger refund. Many people underestimate just how much these can add up come June.
Medicare Levy and Other Surcharges Applicable for 2025-26
Paying taxes isn’t just about income – there are a few extra charges to look out for, especially the Medicare Levy and possible surcharges. Here’s what’s worth knowing for the 2025-26 assessment year.
Standard Medicare Levy Requirements
The Medicare Levy is a tax most Australian residents pay to fund public health care. For 2025-26, the standard Medicare Levy is 2% of your taxable income. You’ll often see this amount withheld from your pay through the PAYG system, but your final levy is settled when you lodge your tax return.
Who Pays the Medicare Levy?
- Most residents with income above certain thresholds
- People with certain visa statuses or non-residents may be exempt
- Low-income earners and some government payment recipients can get reductions or exemptions
Income Thresholds (2025-26)
| Scenario | No Levy Under | Reduced Levy Under |
|---|---|---|
| Individual | $27,222 | $34,027 |
| Family | $45,907 | $57,383 |
| SAPTO-eligible (Single) | $43,020 | $53,775 |
| SAPTO-eligible (Family) | $59,886 | $74,857 |
If your income is below the lower threshold, you won’t pay the levy. If it’s between the two thresholds, you’ll pay a reduced amount that slowly increases as your income does.
Medicare Levy Surcharge Thresholds
This extra surcharge kicks in if you’re a higher-income earner and don’t have private hospital cover. The more you earn above the basic level, the higher the surcharge.
Surcharge Rates and Income Tiers (2025-26)
| Tier | Singles Income | Families Income | Surcharge Rate |
|---|---|---|---|
| 0 | Up to $101,000 | Up to $202,000 | 0% |
| 1 | $101,001–$118,000 | $202,001–$236,000 | 1% |
| 2 | $118,001–$158,000 | $236,001–$316,000 | 1.25% |
| 3 | $158,001+ | $316,001+ | 1.5% |
- Applies if you, your spouse or dependent children aren’t covered by eligible private hospital insurance
- Income for surcharge includes taxable income, reportable fringe benefits, net investment losses, and some additional amounts
- The surcharge is on top of the standard 2% levy
Tax Implications for Families and Low-Income Earners
Family thresholds consider both spouses’ incomes, plus a bit extra for each dependent child. For example, if you have two kids and a partner, your surcharge and levy thresholds are boosted by set amounts for each child.
Things to keep in mind:
- SAPTO: Seniors and pensioners usually get a better deal with higher thresholds
- Everyone’s situation is a bit different – family size, eligible rebates, and private health cover all play a role
- Sometimes the savings from buying hospital cover outweigh the surcharge cost
The Medicare Levy and surcharge aren’t just technicalities – they can have a surprising impact on your tax bill, especially if your income is right on the threshold or you’ve never thought about private health insurance before.
Income Tax Calculation Process for the Assessment Year 2025-26
Getting your head around the way income tax is actually calculated for the 2025-26 year in Australia isn’t as hard as it sounds. The process is pretty clear and follows a few basic steps, which we’ll break down below.
Defining Assessable and Taxable Income
Assessable income is the total income you receive, including things like salary, interest, and sometimes certain government payments. From this, you subtract allowable deductions—basically, any expenses you’re allowed to claim (like some work-related costs).
- Assessable income – Allowable deductions = Taxable income
- Common allowable deductions:
- Work-related expenses (like uniforms or equipment)
- Donations to registered charities
- Certain investment expenses
Your taxable income is what the ATO uses to figure out your tax bill, so getting those deductions right makes a real difference.
Calculating Gross and Net Tax Payable
Once you know your taxable income, Australia’s progressive tax rates kick in. Only the part of your income that crosses each threshold is taxed at the higher rate. Then, tax offsets and the Medicare Levy come into play.
Here’s a simple table showing how the tax rates work for residents in 2025-26 (Medicare Levy not included):
| Taxable Income | Tax on This Income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 + 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 + 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 + 45c for each $1 over $190,000 |
- Calculate gross tax (using the table above)
- Subtract tax offsets (like the Low Income Tax Offset)
- Add Medicare Levy (generally 2% of taxable income)
- Subtract any tax credits or refundable offsets
Example Calculations Using the 2025-26 Slabs
Let’s walk through a quick scenario. Say your total income is $85,000, and your deductions total $5,000. Your taxable income would be $80,000.
- First $18,200 – tax free
- Next $26,800 ($18,201 – $45,000) at 16% = $4,288
- Remaining $35,000 ($45,001 – $80,000) at 30% = $10,500
- Total tax before offsets: $4,288 + $10,500 = $14,788
- Low Income Tax Offset or others applied if eligible
- Plus 2% Medicare Levy on $80,000 = $1,600
So your total payable would be $14,788 (tax) + $1,600 (Medicare Levy) minus any tax offsets you qualify for. To see how this works for different incomes, check out the Simple tax calculator for a quick estimate.
- Start with total income and take away deductions
- Plug the result into the current tax brackets
- Apply offsets and levies as needed
Bottom line: only income above each bracket limit is taxed at the higher rate—not your entire income. That’s a big relief for many people who think otherwise.
It’s easy to think tax is all complicated formulas, but if you go step by step, it’s manageable—and you might be surprised by what you can claim and how much you could save on your final bill.
Tax Savings Strategies Under the New Income Tax Slab for AY 2025-26
Finding ways to legally reduce your tax bill is something most Australians look forward to each year. With the updated tax rates for the 2025-26 assessment year, there are a few smart moves that can help you save a bit more or avoid paying extra. Let’s get into a few key strategies.
Using Superannuation Contributions to Reduce Tax
Putting extra money into super, especially through salary sacrifice, can lower your assessable income and boost your retirement savings at the same time. Super contributions made through salary sacrifice are generally taxed at just 15%, instead of your usual income tax rate.
Here’s how it might work:
- Decide how much of your pay you want to put towards super (up to the annual concessional limit, which is $30,000 in 2025-26).
- Set up a salary sacrifice arrangement with your employer.
- Your employer pays that amount straight into your super fund from your pre-tax pay.
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Many people are surprised by how quickly their super balance grows once they start salary sacrificing, and the tax perks make it even more worthwhile.
Maximising the Benefit from Offsets
Offsets directly reduce your tax bill and are available for a range of circumstances. Get familiar with the main ones for 2025-26:
- Low Income Tax Offset (LITO): Up to $700 for those earning under $37,500, phasing out above $66,667.
- Seniors and Pensioners Tax Offset (SAPTO): Available if you meet age and income criteria, letting eligible retirees reduce their taxes further.
- Spouse and Dependant Offsets: If you’re supporting a low-income spouse or dependant, you may be eligible for some tax relief here too.
| Offset | Maximum Value | Cut-off Income (approx.) |
|---|---|---|
| Low Income Tax Offset (LITO) | $700 | $66,667 |
| Seniors & Pensioners (SAPTO) | Varies | Depends on situation |
| Spouse Tax Offset | $2,282 | $13,808 (spouse’s income) |
Common Mistakes to Avoid in Tax Planning
No one wants a nasty surprise from the ATO. These mistakes can easily happen:
- Not keeping receipts for deductible expenses.
- Forgetting to declare all your income, including side gigs or investments.
- Assuming all super contributions are tax-deductible—check the caps and rules.
- Over-claiming on work-related expenses or making guesses without proper records.
- Ignoring Medicare levy and private health insurance surcharges.
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Double-checking your paperwork and being honest with your claims is always better than risking costly interest or penalties later.
Planning ahead, using available offsets and deductions, and keeping good records can make the end of the financial year a lot less stressful.
Wrapping Up: What to Remember About Income Tax for 2025-26
So, that’s the gist of how income tax works for Aussies in the 2025-26 financial year. The tax brackets have shifted a bit, and there are a few new rates to keep in mind, but the basics are still the same: you only pay higher rates on the part of your income that falls into each bracket. Don’t forget about the tax-free threshold, offsets like LITO, and the Medicare Levy—they all play a part in what you end up owing (or getting back). If you’re ever unsure, it’s worth checking the ATO website or chatting to a tax agent. Tax can feel a bit overwhelming, but breaking it down step by step makes it a lot more manageable. Good luck with your tax return this year!
Frequently Asked Questions
What is the tax-free threshold for the 2025-26 year?
For the 2025-26 financial year, Australian residents don’t pay any income tax on the first $18,200 they earn. This is called the tax-free threshold. Only money earned above this amount is taxed.
How does the progressive tax system work in Australia?
Australia uses a progressive tax system. This means the more you earn, the higher your tax rate on the extra income. You only pay the higher rate on the part of your income that falls into each tax bracket, not on your whole income.
Are there different tax rates for non-residents and working holiday makers?
Yes, non-residents and working holiday makers have different tax rules. Non-residents pay a flat 30% tax on their first $135,000, and higher rates above that. Working holiday makers pay 15% on the first $45,000 they earn, then higher rates after.
What is the Medicare Levy and who has to pay it?
Most Australian residents pay the Medicare Levy, which is 2% of their taxable income. This helps fund the public health system. Some people on low incomes or with special situations might pay less or not have to pay it at all.
How do tax offsets like LITO and SAPTO help reduce tax?
Tax offsets like the Low Income Tax Offset (LITO) and the Seniors and Pensioners Tax Offset (SAPTO) lower the amount of tax you have to pay. LITO is for people on lower incomes, and SAPTO is for eligible seniors and pensioners. These offsets can mean you pay less tax or even none at all if you qualify.
What are some simple ways to save on tax for 2025-26?
You can save on tax by making extra superannuation contributions, claiming all your work-related deductions, and making sure you get any offsets you qualify for. Always double-check your tax return to avoid mistakes and get the most savings.
