When you hear about the “ATO tax brackets 2025,” it’s really about figuring out how much of your hard-earned money goes to tax. For the 2025–26 financial year, Australia uses a progressive system. Think of it like a series of buckets: you only start filling the next bucket (and paying a higher rate) once the one before it is full. This guide will walk you through the latest income tax Australia 2025 rates, who they affect, and how to calculate what you owe.
These brackets are a direct continuation of the tweaked Stage 3 tax cuts 2025 that came into effect on 1 July 2024. This means the tax-free threshold is still $18,200, and from there, the rates climb from 16% all the way up to 45% for those with the highest incomes.
Getting your head around the ATO tax brackets for 2025 is a lot easier than you might think. You don’t pay your highest tax rate on your entire salary. Instead, Australia uses what’s called a progressive tax system.
The system looks at your income chunk by chunk, applying the correct rate to each portion. The rate shown for each bracket is your marginal tax rate. This is a key concept to grasp. It’s the rate you pay only on the dollars that fall inside that specific bracket—it’s not applied to your entire income.
Because your income is taxed in tiers, the first dollar you earn is treated very differently from the last. Everyone gets the first $18,200 of their income completely tax-free. It’s only once you earn more than that amount that the next slice of your income gets taxed at the 16% rate. This is why your overall tax rate (often called your ‘effective’ rate) is always lower than your highest marginal rate.
Let’s break down the official ATO tax rates 2025 for Australian residents in the 2025–26 income year. Getting your head around these numbers is the first real step to forecasting what your tax return might look like.
One crucial thing to remember: the table below doesn’t include the 2% Medicare levy. That’s calculated on top of these figures, so keep it in mind.
| Taxable Income | Tax Rate | Tax Payable |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 + 30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 + 37c for each $1 over $135,000 |
| $190,001+ | 45% | $51,638 + 45c for each $1 over $190,000 |
The term taxable income simply means your total income after you’ve subtracted any deductions you’re entitled to. For a full list of potential claims, see our guide to Work-Related Deductions 2025.
When we talk about the ATO tax brackets for 2025, what we’re really discussing are the major changes from the Stage 3 tax cuts. These kicked in on 1 July 2024, and their main goal was to give pretty much everyone a bit of a break from the rising cost of living. They completely shook up the old tax system and set the new tax thresholds for 2025.
Before this overhaul, the tax brackets looked quite different. The government essentially got rid of the old 32.5% and 37% brackets and merged them into a much wider 30% bracket. On top of that, the lowest tax rate was dropped from 19% down to 16%. The top 45% tax rate threshold was also lowered from $200,000 to $190,001.
The simple answer is that every single Aussie taxpayer gets a tax cut under the revamped stage 3 tax cuts for 2025. But how much you benefit really depends on what you earn. The final version of the plan was tweaked to spread the relief more evenly.
In short, everyone gets some relief, but the changes were designed to give low and middle-income earners a more meaningful slice of the pie. These are the 2025 tax return changes that matter.
If you’re a foreign resident for tax purposes, the rules are different. You don’t get the tax-free threshold, and the rates start higher. Here are the Australian tax brackets 2025 for non-residents.
| Taxable Income | Tax Rate |
|---|---|
| $0 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
On top of your income tax, most Australian residents are also required to pay the Medicare levy 2025, which is set at 2% of your taxable income. This levy helps fund Australia’s public health system.
The Medicare levy is calculated on your total taxable income, not just the portion that falls into a specific bracket. For example, if your taxable income is $80,000, your Medicare levy would be $1,600 ($80,000 x 2%).
Some low-income earners may be eligible for a reduction or may not have to pay the levy at all. Additionally, there are specific exemptions for certain medical reasons or for those not entitled to Medicare benefits. To see if you qualify, check our Medicare Levy Exemption Guide.
Alright, knowing the theory behind the ATO tax brackets 2025 is a great start, but the real test is seeing how it applies to your own paycheque. Let’s crunch some numbers and walk through two real-world examples to make it all click.
Let’s say your taxable income for the 2025–26 financial year is $80,000. Here’s how the ATO would work out your tax bill, step-by-step.
If you’d like a more precise estimate, our Tax Refund Calculator is a fantastic tool to check out.
Now, let’s look at a higher income to see how the top tax brackets come into play. We’ll use a taxable income of $200,000.
You can also use the ATO’s official tool to calculate your tax payable in Australia.
The new ATO tax brackets for 2025 create a ripple effect that touches almost every part of your financial world. Understanding these wider impacts is key to smart financial planning.
With the new brackets providing a tax cut for all taxpayers, your refund expectations might change. If your employer has been withholding tax correctly based on the new rates, your take-home pay throughout the year would have been higher. This may mean your refund at tax time is smaller than previous years, or you may even have a small amount to pay.
If you’re a sole trader, these changes hit your tax planning directly. With more stable and predictable brackets, you can forecast your personal tax obligations with more confidence. This makes managing your cash flow and figuring out how much to put aside for the tax man much simpler.
Bracket creep is when a pay rise or inflation bumps you into a higher tax bracket, reducing your real spending power. The redesigned tax thresholds for 2025 provide welcome relief, especially with the 30% tax bracket now covering incomes up to $135,000. Your marginal tax rate also influences superannuation strategies, as concessional contributions can lower your taxable income. Thinking about these things now is what good financial management is all about. A solid grasp of the income tax Australia 2025 rules is the foundation for any effective Tax Planning for 2025.
The ATO tax rates for 2025 are a continuation of the rates introduced on 1 July 2024. The resident tax rates are 0%, 16%, 30%, 37%, and 45%, depending on your income level.
For most employees on a PAYG system, you don’t need to do anything. Your employer’s payroll software should have automatically adjusted to the new tax thresholds for 2025 on 1 July 2024.
The difference is significant. The old 19% rate dropped to 16%, and the 32.5% and 37% brackets were replaced with a larger 30% bracket (up to $135,000) and a new 37% bracket from $135,001 to $190,000. These 2025 tax return changes deliver a tax cut to almost every taxpayer.
Indirectly. Your HECS-HELP repayment is a set percentage of your ‘repayment income’. The Australian tax brackets 2025 don’t change these percentages, but because the tax cuts increase your take-home pay, your overall cash flow changes. Remember to budget for your HECS-HELP repayment on top of the income tax you owe.
Need help understanding your 2025 tax outcome? The expert team at Nanak Accountants is here to offer advice tailored to your personal situation and make sure you’re set up for success this tax season. Book a tax return consultation with Nanak Accountants today!
The information on this website is for general informational purposes only and should not be considered financial, taxation, or legal advice. While we strive for accuracy, Nanak Accountants does not guarantee the completeness or reliability of the content. Laws and regulations change over time, and we recommend consulting a qualified professional before making any financial or business decisions. Nanak Accountants is not liable for any loss or consequences arising from reliance on this information. For personalised advice, please contact Nanak Accountants directly.
