Income tax
Know how much tax you will pay
If you earn money from your work or from 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 Tax
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 2016-17
| Taxable income |
Tax on this income |
| $0 - $18,200 |
Nil |
| $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 + 47c for every dollar over $180,000
(includes Temporary Budget Repair Levy) |
This means that if you earned $60,000 per year, your tax would
be calculated like this:
|
Taxable income |
|
Tax payable |
|
$18,200 |
x
nil |
=
$0 |
|
$18,800 ($37,000 - $18,200) |
x
19c |
=
$3,572 |
| $23,000
($60,000 - $37,000) |
x 32.5c |
= $7,475 |
|
$60,000 |
|
$11,047 |
The tables above only apply to Australian residents who are 18
and over and does not include the Medicare levy. The top marginal tax
rate does include the budget repair 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
surcharge
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 deducted as part of your income tax and
forwarded to the tax office on your behalf.
The ATO website has more information on the Medicare levy.
What income is taxable?
Your taxable income is your assessable income minus your tax
deductions.
Income that is taxable
Income that you must pay tax on includes money from:
- Employment
- Pensions and annuities
- Most government payments
- Investments
- 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
Take a
look at our tax refund
infographic to find out the average refund and how people spend
it.
Reducing your tax bill
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
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
accountant)
You can find out more about deductions on the ATO's income and deductions
webpage.
Tax offsets
Tax offsets directly reduce the amount of tax paid, 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
Salary sacrificing is another way you can reduce your tax bill.
Salary sacrificing is when you put some of your pre-tax income
towards a particular benefit before you are taxed. This is usually
only tax-effective for medium and high income earners. For more
details see our information on salary sacrifice.
Where to go for help on your
tax
Tax is a very complex area and many people choose to use an
accountant or tax agent to do their tax return. Find out more about
choosing
an accountant.
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.
Related links
Last updated: 20 Jun 2017
