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Australia has an income tax system that works as a scale – the more a person earns, the more they’re taxed. It's a complex system that often leaves those unaccustomed scratching their heads, but it's one worth understanding if you’re earning money in Australia. If you’re unsure how much income tax you might be liable for this financial year, simply plug your details into the above calculator for an instant estimate.

Savings.com.au's income tax calculations are estimates only; consider speaking to a professional to get dedicated tax advice.

What is income tax?

Income tax is, for the most part, exactly what it sounds like – tax a person pays on the income they earn. In this case, income includes any salary or wages received through working, any profits you make from a business you run, and returns you realise from investments. 

We have what’s called a progressive tax system down under. That means you get taxed more if you earn more. 

Most Australians won’t need to pay income tax if they earn less than $18,200 a year – known as the tax-free threshold.

After they reach that threshold, they’ll be taxed 19 cents for every dollar they earn over $18,200, up to the next threshold – $45,000. Then, they’ll be taxed 32.5 cents for each dollar they earn over $45,000. And so on and so forth, as the below chart shows.

Financial year 2024/2025

Taxable income

Tax on income

<$18,200

None

$18,201-$45,000

19 cents for every dollar over $18,200

$45,001-$120,000

$5,092 plus 32.5 cents for every dollar over $45,000

$120,001-$180,000

$29,467 plus 37 cents for every dollar over $120,000

>$180,000 

$51,667 plus 45 cents for every dollar over $180,000

Let’s take Taylor Axe (Tay for short) as an example. Tay expects to earn $18,201 this financial year. That means she’ll be taxed just 19 cents (19 cents on the single dollar she earned above the tax-free threshold).

However, she forgot to factor her side hustle into her estimates and, instead of $18,201, Tay actually earns $50,000 this financial year. 

In that case, she’ll be taxed 19 cents for every dollar she earns between $18,200 and $45,000 (a total of $5,092), plus 32.5 cents for each of the five thousand dollars she earned over $45,000 ($1,625). So, her total income tax for this financial year comes to $6,717.

Who needs to pay income tax in Australia?

It’s important to note that the tax rates in the above table apply to those who are residents of Australia for tax purposes. 

If you’re a foreign resident for tax purposes and have earned money in Australia, you’ll likely be liable for a different amount of tax. Working holiday makers are also subject to their own tax rate. If you fall into either camp, it's likely worth reaching out for independent, professional tax advice.

Aussies under the age of 18 also have to pay income tax if they earn more than $18,200 in a year. On top of that, there’s a specific tax rate for ‘unearned’ income (dividends from shares, for instance) attributed to a person under 18 years of age. The rate was introduced to discourage adults from diverting income to their kids.

How do I pay income tax?

Fortunately, paying income tax is typically simple. In fact, a fair chunk of it is generally taken from your wages before you receive them. 

Then, at the end of the tax year, you can log onto MyGov where, if you’re employed, all your income details should appear. From that point, a punter just has to click a few buttons and, bam, their tax assessment is ready. Still, plenty of Aussies choose to seek out professional help at tax time. 

Of course, it’s not always that simple. Particularly if you’re a business owner or sole trader or if you wish to make deductions. 

The Australian Taxation Office (ATO) accepts payments through BPAY, its online services, electronic transfer, by check or money order, or in person at Australia Post outlets. 

What is a deduction?

Have you ever spent money on something you plan to use exclusively for work purposes? You might be able to claim it as a tax deduction. 

For example, if you’re employed as a hairstylist and bought a fancy new pair of scissors to use at work, you might be able to claim them as a deduction, thereby reducing your taxable income by the amount you spent. But not all work-related items can be used as a tax deduction. 

If you forked out on a designer handbag that you carry your laptop in from time to time, you probably shouldn’t try to claim it as a tax deduction. 

What happens to the money I pay in tax?

The money that you pay in tax goes to fund many services that support the Australian community, such as the education and healthcare systems. 

It also funds the construction and maintenance of infrastructure, as well as the Australian Defence Force, just to name a few ways it's used.

It's up to the Australian Government to decide how to best spend income tax revenue.

What does salary sacrifice mean?

If you’ve plugged your annual earnings into the above calculator, you likely saw the line, ‘employment income (after salary sacrifice, before tax)’. 

The latter part is simple: Before tax simply references your income before tax is removed. But what is salary sacrificing?

Salary sacrificing is a way in which you might be able to reduce your taxable income. It can also provide some notable benefits. However, it also means you receive less money each week, fortnight, or month. 

Most people can salary sacrifice into their superannuation, thereby growing their retirement funds while reducing their income tax.

Some employers will also offer other types of salary sacrificing opportunities, like a novated lease on a car or certain fringe benefits. Such opportunities can reduce a person’s taxable income by essentially funnelling their pre-tax income to a specific use. 


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