A great place to start

Australian Income Tax Brackets

If only we could live without income tax!

But a world without tax is more of a stretch than pigs piloting an airplane. If you work in Australia (regardless of residency status) and earn over the tax free threshold ($18,200 at the time of writing), you WILL have to pay Australian income taxes.

Even if you don’t earn a cent from earnings in Australia, but earn money from overseas, you may have to pay Australian taxes based on your residency status.

It can all get a little confusing, but here’s the rub: expect to pay something.

In this post, I’m going to help you estimate how much you’ll pay with a quick and dirty guide to Australian tax brackets.

Tax-free threshold

Australian Tax Free Threshold

If you qualify for the tax-free threshold, the first $18,200 of your income is tax free.

That’s the major benefit of being an Australian resident for tax purposes. But you won’t get this perk with any other tax status. You MUST be an Australian resident for tax purposes to receive the tax-free threshold.

The good news is that this threshold applies to all Australian residents (for tax purposes) , regardless of how much you make.

So even if you make $200k or more, the first $18,200 is tax free.


But you should know...

The more you make, the more you’ll pay in taxes. Both in terms of overall dollars (naturally) and as a percentage of your income.

So how much tax will you pay?

In most cases, you’ll pay Australian tax throughout the year. Your employer will deduct your tax from each pay packet and send it straight to the Australian Tax Office (ATO) on your behalf.

The amount of tax you’ll pay is directly related to your income. The ATO uses a sliding scale to determine how much you’ll pay.

Check out the following chart for a quick overview of what you’ll pay in taxes based on your income in 2018-19.

Income bracket Tax on income
0 to $18,200 Nil
$18,201 to $37,000 $0.19 per $1 over $18,200
$37,001 to $90,000 $3,572 + $0.325 per $1 over $37,000
$90,001 to $180,000 $20,797 + $0.37 per $1 over $90,000
$180,001+ $54,097 + $0.45 per $1 over $180,000

This applies to Australian residents over the age of 18 – and it does not include the mandatory Medicare levy of two percent, which you’ll pay in addition to your tax.

Will you ever earn less in a higher tax bracket?

Many people worry that they may end up taking home less money if they move to a higher tax bracket.

Fortunately, because of the way Australian tax brackets are set up, this is never the case (unless something else changes, like the addition of a loan repayment).

So if you earn $18,201 at the end of the year, you will only be responsible for paying taxes on $1 (thanks to the $18,200 tax-free threshold).


Australian Tax Brackets Example

If you earn $37,001, you have $18,801 in taxable income. That’s $37,001 minus the tax-free threshold of $18,200.

But because that one dollar puts you into a higher tax bracket, your income actually spans three tax brackets.


Let’s break it down...
  • Total Annual Income: $37,001
  • Tax-free threshold $18,200
  • Total taxable income: $18,801 ($37,001 - $18,200)

  • Income from bracket #1 $18,200
  • Tax from bracket #1 $0.00

  • Income from bracket #2 $18,800
  • Tax from bracket #2 $3,752

  • Income from bracket #3 $1.00
  • Tax from bracket #3 $0.325

  • Total taxes due: $3,752.33

As you can see, although you’ll pay a higher percentage of tax once you move into another bracket, that higher percentage will only apply to the income that falls within that higher bracket. You won’t pay any more tax on the income you were already earning.


In this example...

Your net income while making $37,000 would be $33,248.
and
Your net income while making $37,001 would be $33,248.67.

Your earning isn’t much more, but it is still more. As you move up in tax brackets, you still get to keep a percentage of every dollar you earn, but it will be a smaller percentage on the income that falls into each new bracket.

Conclusion

The concept behind Australian tax brackets is simple, but there are a few variables. And there’s also some maths involved.

If you’re like most people and you want to get straight to the number, we’ve got you covered.

We’ve created an Australian income tax calculator that can help you determine how much you’ll owe based upon the tax-free threshold and your income bracket. It’s a quick and easy resource to help you figure out if you’re paying enough to the ATO throughout the year so you can adjust your payments as you go.

Because, let’s face it, no one wants to be faced with a major tax bill at the end of the fiscal year.

Note that if you’re a foreign or temporary resident, the calculation will be different. As a non-resident who isn’t as familiar with Australian taxes, you may end up paying too much or too little. Be sure to talk to an accountant if you need some help.