Knowing your income tax rates is the first step to understanding your pay, your tax refund, and how much you actually take home. Australia uses a progressive tax system: you pay a higher rate only on income that falls into each higher bracket, not your whole income. This guide lays out the current rates, the Medicare levy, the offsets that lower your bill, and the tax rates 2026 and beyond already locked in for future years.
It pays to read current figures, not an old page. The rules from 1 July 2026 and 1 July 2027 differ again, so let us start with where things stand now.
Resident Tax Rates For The 2025-26 Income Year
For Australian residents, the resident tax brackets are straightforward. Income from $0 18,200 is tax free, the tax free threshold, and you pay tax only on every $1 over 18,200. From there, $18,201 45,000 is taxed at 16 cents in the dollar, $45,001 135,000 at 30%, $135,001 190,000 at 37%, and any taxable income above $190,000 at 45%.
Because the system is tiered, your marginal tax rate, the rate on your last dollar earned, is higher than the average rate you actually pay across all your income. These above rates do not include the Medicare levy, which sits on top.
The Medicare Levy And Surcharge
Most working Australians also pay the Medicare levy, which is 2% of taxable income and helps fund the public health system. There are Medicare levy thresholds, also called low income thresholds, so singles earning up to around $26,000 are exempt, and families up to roughly $41,089 plus $3,760 per dependent child pay nothing.
On top of that, a Medicare Levy Surcharge of 1% to 1.5% can apply to higher earners who do not hold private hospital cover. Avoiding it is why many people take out private hospital cover once their income climbs.
Tax Offsets That Lower Your Bill
Offsets are different from deductions. A tax offset reduces the tax you owe dollar for dollar, not your taxable income. The Low Income Tax Offset still applies, giving lower earners a useful reduction calculated automatically when you lodge.
You may remember the Low and Middle Income Tax Offset, sometimes called the middle income tax offset, which gave middle income earners a boost in earlier years. That one has ended, but new support is coming, as we will see.
What Is Changing: The Tax Cuts Ahead
This is where reading a current page matters most. The government has legislated an ongoing annual tax cut, the third of three tax cuts, that reshapes the lower brackets over two years.
From 1 July 2026, the lowest tax bracket drops from 16% to 15%, and the 30% bracket reduces to 29%. From 1 July 2027, those rates fall again to 14% and 28%. For most Australians earning over $45,000, the combined benefit is a tax saving of around $268 in 2026-27, rising further the year after.
More tax support is coming too. A Working Australians Tax Offset of $250 a year starts from the 2027-28 income year, benefiting over 13 million workers, and it complements the existing Low Income Tax Offset. An instant tax deduction of $1,000 for work related expenses will also be available from 2026-27, letting you claim that amount without receipts.
Bigger Changes On The Horizon
A couple of larger reforms are worth flagging for investors and property owners. From 1 July 2027, the 50 per cent capital gains tax discount, the 50 per cent CGT discount based on halving a gain, is set to be replaced with inflation-adjusted cost base indexation, changing how a taxable gain is worked out on assets and properties held long term.
Negative gearing is also changing. From 2027, the ability to deduct losses against other income is planned to be limited to new builds, so anyone looking to buy established housing should factor that in.
Rates For Non-Residents And Working Holiday Makers
The brackets above apply to Australian residents for tax purposes. Non residents pay tax from the first dollar with no tax free threshold, at different marginal rates. Working holiday makers on a relevant visa subclass, the backpacker tax, have their own new arrangements again, starting at 15% on lower earnings. If you arrived or left partway through a year, your residency for tax purposes changes things, so it is worth checking.
Other Rates And Rules To Know
A few extras round it out. Small businesses and discretionary trusts have their own rates and rules, and some capital gains can access rollover relief. The ATO tax tables set how much PAYG withholding employers deduct as pay as you go. There is no minimum tax, and your total superannuation balance can affect related concessions. Those on average earnings sit in the 30% bracket.
Case Study: An Ellenbrook Family Checks Their Position
An Ellenbrook family came to us unsure whether they were paying the right amount of tax. One partner earned just over $135,000 and had crept into a higher bracket, while the other worked part-time around two young children.
We confirmed their marginal rates, made sure both claimed their offsets, and arranged private hospital cover to sidestep the Medicare Levy Surcharge that had started applying. We also mapped out what the 2026 and 2027 tax cuts mean for their take home pay. They left with a clear picture, the right offsets, and a smaller tax bill.
Frequently Asked Questions
These are the questions we hear most about tax rates. Anything else, just ask.
What Is The Tax Free Threshold?
The tax free threshold is $18,200, meaning you pay no income tax on the first $18,200 of taxable income each year. Above that, the tax rates step up through the brackets, so only the income in each band is taxed at that band’s rate.
When Do The New Tax Cuts Start?
The first cut applies from 1 July 2026, when the lowest bracket drops to 15% and the 30% bracket to 29%. A second cut follows on 1 July 2027, taking those rates to 14% and 28%, with further support from the Working Australians Tax Offset in 2027-28.
Do Tax Rates Include The Medicare Levy?
No. The published marginal rates do not include the Medicare levy, which is an extra 2% of taxable income for most people. Remember to add the levy, and any surcharge, on top of the bracket rate.
Know Your Rates, Keep More Of Your Pay
Understanding the brackets, the Medicare levy, and the offsets puts you in control rather than guessing. With real cuts arriving in 2026 and 2027, the next two years are a chance to plan ahead and keep more of what you earn.
If you would like to know exactly where you sit and what the changes mean for you, our Perth team can help. We handle personal tax returns and planning every day, and a registered tax agent makes sure you claim every offset on your tax return and pay only the correct amount. Book a consultation today, and let us take the guesswork out of your tax.
