Know how much tax you will pay
If you earn money from work or investments, you will usually pay
tax on that money. Understanding how your tax is calculated will
help you work out how much tax you should pay.
How much tax will you pay?
Income tax is money paid to the government from the money you
earn. It is usually paid throughout the year as you earn the
income. For example, if you work for an employer, your employer
will deduct tax from each pay and send it to the Australian
Taxation Office (ATO) on your behalf.
Your marginal tax rate
The amount of tax you pay will depend on how much you earn.
Australia uses a sliding scale of tax. The highest rate of tax you
will pay is known as your marginal tax rate.
Marginal tax rates for 2017-18
||Tax on this income
|$0 - $18,200
|$18,201 - $37,000
||19c for every dollar over $18,200
|$37,001 - $87,000
||$3,572 + 32.5c for every dollar over $37,000
|$87,001 - $180,000
||$19,822 + 37c for every dollar over $87,000
|$180,001 and over
||$54,232 + 45c for every dollar over $180,000
This means that if you earned $60,000 per year, your tax would
be calculated like this:
$18,800 ($37,000 - $18,200)
($60,000 - $37,000)
The tables above only apply to Australian residents who are 18
and over and does not include the Medicare levy. Foreign residents
and the investment income of children are taxed at different rates.
See the ATO's web pages on income of minors and foreign employment income.
Work out how much tax you will pay this year and what your
marginal tax rate is.
Income tax calculator
Medicare levy and the
In addition to income tax, most people will also have to pay a
Medicare levy. The Medicare levy is calculated as 2% of your
taxable income. It is used to help fund our public health system.
Generally, it allows you to visit a doctor or receive treatment at
a public hospital free of charge.
Low income earners may have their Medicare levy reduced or may
not have to pay it at all. People not entitled to use our Medicare
system, such as foreign residents, will not have to pay the
Medicare levy either.
High income earning individuals or families who do not have an
appropriate level of private patient hospital cover may have to pay
a Medicare levy surcharge. This is an extra 1%, 1.25% or 1.5% of
their taxable income depending on their income level.
The Medicare levy is charged as part of your yearly income tax
assessment. The ATO website has more information on the Medicare levy.
What income is taxable?
Your taxable income is your assessable income minus your tax
Income that is taxable
Income that you must pay tax on includes money from:
- pensions and annuities
- most government payments
- capital gains
- income from trusts, partnerships or businesses
- foreign income.
The ATO has more information on income you must declare
in your tax return.
Income that is not taxable
You will not have to pay tax on:
- lottery winnings and other prizes
- small gifts or birthday presents
- some government payments
- child support
- the tax-free portion of your redundancy payment
- government super co-contributions.
The ATO has more details on amounts not included as income.
How Australians spend their tax refund
look at our tax refund
infographic to find out the average refund and how people spend
Reducing your tax payable
You may be able to reduce the amount of tax you pay if you are
entitled to any tax deductions or tax offsets (rebates) or if you
decide to salary sacrifice.
Tax deductions are certain expenses you incurred in order to
earn your income. Deductions reduce your taxable income before the
tax is calculated.
Common deductions include:
- Work-related expenses
- Self-education expenses
- Charitable donations
- The cost of managing your tax affairs (like paying an
You can find out more about deductions on the ATO's income and deductions
Tax offsets directly reduce the amount of tax owing, and are
applied after the tax has been calculated.
Common tax offsets include offsets for:
- low income earners
- taxpayers with a dependent relative
- pensioners and senior Australians
- the taxable portion of a superannuation income stream.
You can find out more about tax offsets on the ATO's offsets and rebates webpage.
Salary sacrificing is another way you can reduce your tax bill.
Salary sacrificing, also known as salary packaging, is when
you put some of your pre-tax income towards a particular benefit
before you are taxed. Common salary sacrifice benefits include
superannuation and motor vehicles.
For more details, see our webpage on salary packaging.
Getting a tax bill
You may not have prepaid enough tax to cover your yearly
tax assessment if:
- you've received income where no tax was withheld
- you're a sole trader and haven't paid enough tax to the ATO
throughout the year, or
- your employer hasn't withheld enough tax from your assessable
This means that you will get a tax bill, rather than a refund,
after you lodge your tax return.
Common reasons you may not have prepaid enough tax during the
- You moved into a higher tax bracket because your assessable
income increased (e.g. through a promotion or another source of
- You earned income as a sole trader
- You received income from investments (e.g. rental income,
interest or dividends) or through the sharing economy (e.g. Uber,
- Your study or training support loan repayments increased
because your assessable income went up
- Your Medicare levy or Medicare levy surcharge payable changed
or there was a change in your private health insurance rebate
- The amount of tax offsets or rebates you're entitled to changed
because your income increased
- You made a capital gain during the income year,
- You received income from a business, partnership or trust.
How to avoid getting a tax bill
If you've earned income where no (or not enough) tax has been
withheld, you can take steps to reduce the likelihood of receiving
a tax bill. For example you could:
- voluntarily make PAYG instalments - If you
earn income as a sole trader or from investments, you can choose to
make voluntary PAYG instalments.
- prepay tax - You can make tax prepayments any time to make it
easier to manage your tax. Prepaid amounts are held by the ATO
towards your expected bill, unless you or your agent request a
- increase employer tax withheld - You can ask
your employer to increase the amount of tax withheld from your pay.
This is known as an upward variation.
- consider the impact of a capital gain - If you
sell a capital asset for more than what you paid for it you will
have made a capital gain. Consider the impact
the amount and timing of the gain will have on your assessable
If you're not sure how much tax to set aside, our income tax
calculator will estimate how much tax you are likely to owe so
you can plan how much money to set aside or prepay.
Where to go for help with your
Tax is a very complex area and many people use an accountant or
tax agent to help manage their income tax obligations and
complete their tax return. Find out more about choosing an
If you do your own tax return make sure you are getting all the
deductions and offsets you are entitled to. You can use the ATO's
income tax calculator to give you an
idea of what to expect before you lodge.
Understanding how your income is taxed will help
you to make better decisions about your money.
Last updated: 30 Apr 2018