Australian Tax Brackets- Tax Rates For Australian Residents
Australia, just like numerous other nations, has a progressive tax system. In simpler terms, it means that the more you earn, the more tax you pay.
Tax brackets refer to ranges of taxable income levels that determine the rate at which individuals or entities are taxed. These tax brackets vary from time to time. For the past 5 consecutive years, the tax brackets have remained consistent.
However, with the recent legislation of the Stage 3 tax cuts, the majority of Australians are set to benefit from reduced taxes starting in the 2024-25 financial year. Until these changes take effect, the current income tax rates and thresholds will remain in place.
The income tax brackets and rates for this current and the upcoming financial year are listed below:
Tax bracket- 2024-25
Note: the above-mentioned rates exclude the Medicare levy of 2%.
Starting from 1 July 2024, there are updates to Australia’s income tax brackets and rates:
- The lowest tax rate goes down from 19% to 16%.
- The 32.5% tax rate decreases to 30%.
- The income threshold for the 37% tax rate rises from $120,000 to $135,000.
- The threshold for the top 45% tax rate increases from $180,000 to $190,000.
These changes will affect Australian residents in the upcoming financial year and beyond.
Tax bracket- 2023-24
Note: the above-mentioned rates exclude the Medicare levy of 2%.
How is Income Tax Calculated?
A lot of individuals have this misconception that once their income hits a certain tax bracket, the entire income is taxed at that rate. However, it is far from the truth. Only the amount of that income that has gone above the threshold is taxed at that higher rate, not the entire income.
Let’s try to understand this with an example for the 2023-24 financial year.
If you earn $75,000, you fall into the 32.5% tax bracket, which applies to income between $45,001 and $120,000. However, only the income above $45,001 is taxed at 32.5% – in this case, that’s $29,999.
Here’s the breakdown:
- The first $18,200 of your income is tax-free.
- The income between $18,201 and $45,000 is taxed at 19%, resulting in $5,092 in tax.
- The income between $45,001 and $75,000 is taxed at 32.5%, resulting in $9,749.68 in tax.
Adding these amounts together, you pay a total of $14,841.68 in tax. This works out to an overall tax rate of approximately 19.79% on your total income of $75,000.
(Please note that the above examples do not include tax offsets and the Medicare levy.)
So, instead of the entire amount being taxed at 32.5%, you are paying approximately 20% of the total income. Now, what if you could bring down the percentage even more?
Well, you’d be glad to know that you can, in fact, bring this percentage further down by using tax deductions. Tax deductions reduce your assessable income, which includes employment income, government payments, investment income, foreign income, etc. Since the assessable income is low, the amount of tax needed to be paid also gets lower.
Deductions can be claimed on work-related expenses, cost of managing tax affairs, donations & gifts, personal super contributions, investments, dividends, interest and so on.
However, before claiming these deductions, you need to know if you are eligible for them and if you have the right records to prove the expenses. It is suggested that you reach out to a professional who can not only help you claim all the deductions but also guide you on your tax matters.
At Clear Tax Accountants, we have helped som many clients save a huge amount on their taxes and helped them understand their tax obligations better. So, if you are also looking for these kind of services, contact us today!
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