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Note: In the 2019 Federal Budget the coalition government proposed income tax cuts, building on the Personal Income Tax Plan announced in the 2018 Federal Budget. These have now passed Parliament and will soon be legislated.
The Australian Tax Office (ATO) collects income tax from working Australians each financial year. Financial years run from 1 July to 30 June of the following year, so we are currently in the 2019/2020 financial year (1 July 2019 to 30 June 2020).
The income tax brackets and rates for Australian residents for the current year are listed below.
| Income thresholds | Rate | Tax payable on this income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $37,000 | 19% | 19c for each $1 over $18,200 |
| $37,001 – $90,000 | 32.5% | $3,572 plus 32.5% of amounts over $37,000 |
| $90,001 – $180,000 | 37% | $20,797 plus 37% of amounts over $90,000 |
| $180,000 and over | 45% | $54,096 plus 45% of amounts over $180,000 |
Source: ATO
Background: In the 2018 and 2019 Federal Budgets, the Federal government announced packages of income tax cuts, including the introduction of the new (and temporary) Low and Middle Income Tax Offset (LMITO) and changes to most tax brackets. For more detail see SuperGuide articles Australian personal income tax cuts from 2018/2019 year and 2019 Federal Budget overview: Super, tax and related announcements.
We have summarised the tax bracket changes for future years in the following table:
| 2018/2019, 2019/2020, 2020/2021 and 2021/2022 | 2022/2023 and 2023/2024 | From 2024/2025 | |||
|---|---|---|---|---|---|
| Taxable income | Tax rate | Taxable income | Tax rate | Taxable income | Tax rate |
| $0 – $18,200 | Nil | $0 to $18,200 | Nil | $0 – $18,200 | Nil |
| $18,201 – $37,000 | 19% for amounts over $18,200 | $18,201 – $45,000 | 19% for amounts over $18,200 | $18,201 – $45,000 | 19% for amounts over $18,200 |
| $37,001 – $90,000 | $3,572 + 32.5% for amounts over $37,000 | $45,001 – $120,000 | $5,092 + 32.5% for amounts over $45,000 | $45,001 – $200,000 | $5,092 + 30% for amounts over $45,000 |
| $90,001 – $180,000 | $20,797 + 37% for amounts over $90,000 | $120,001 – $180,000 | $29,467 + 37% for amounts over $120,000 | ||
| $180,001 and over | $54,097 + 45% for amounts over $180,000 | $180,001 and over | $51,666 + 45% for amounts over $180,000 | $200,001 and over | $51,592 + 45% for amounts over $200,000 |
Source: ATO
The tax rates for foreign residents for the 2018/2019 and later income years are summarised in the following table:
| Income thresholds | Rate | Tax payable on this income | |
|---|---|---|---|
| $0 – $90,000 | 32.5% | 32.5% of amounts over $0 | |
| $90,001 – $180,000 | 37% | $29,250 | + 37% of amounts over $90,000 |
| $180,000 + | 45% | $62,550 | + 45% of amounts over $180,000 |
Source: ATO
Note: Non-residents are not liable for the Medicare levy and are not eligible for the the CGT discount on their capital gains that accrue after 8 May 2012.
The tax rates for foreign residents from the 2018/2019 financial year and later income years are summarised in the following table:
| 2018/2019, 2019/2020, 2020/2021 and 2021/2022 | 2022/2023 and 2023/2024 | From 2024/2025 | |||
|---|---|---|---|---|---|
| Taxable income | Tax rate | Taxable income | Tax rate | Taxable income | Tax rate |
| $0 to $90,000 | 32.5% for each dollar | $0 to $120,000 | 32.5% for each dollar | $0 to $200,000 | 32.5% for each dollar |
| $90,001 to $180,000 | $29,250 + 37% for amounts over $90,000 | $120,001 to $180,000 | $39,000 + 37% for amounts over $120,000 | $200,001 and over | $65,000 + 45% for amounts over $200,000 |
| $180,001 and over | $62,550 + 45% for amounts over $180,000 | $180,001 and over | $61,200 + 45% for amounts over $180,000 | ||
Source: ATO
| Income thresholds | Rate | Tax payable from 2016/2017 and 2017/2018 | |
|---|---|---|---|
| $0 – $18,200 | 0% | Nil | |
| $18,201 – $37,000 | 19% | Nil | + 19% of amounts over $18,200 |
| $37,001 – $87,000 | 32.5% | $3,572 | + 32.5% of amounts over $37,000 |
| $87,001 – $180,000 | 37% | $19,822 | + 37% of amounts over $87,000 |
| $180,000 + | 45% | $54,232 | + 45% of amounts over $180,000 |
Source: ATO
| Income thresholds | Rate | Tax payable from 2016/2017 and 2017/2018 | |
|---|---|---|---|
| $0 – $87,000 | 32.5% | Nil | + 32.5% of amounts over $0 |
| $87,001 – $180,000 | 37% | $28,275 | + 37% of amounts over $87,000 |
| $180,000 + | 45% | $62,685 | + 45% of amounts over $180,000 |
Source: ATO
Continue reading to learn more about how Australian income tax is calculated including offsets, levies, surcharges and that may reduce or increase your income tax.
The formula for calculating income tax payable is outlined below:
Assessable income minus Allowable deductions
equals
TAXABLE INCOME
apply Tax rates
equals
GROSS TAX PAYABLE
minus Tax offsets
equals
NET TAX PAYABLE
plus Medicare Levy
minus Tax credits and refundable offsets
equals
AMOUNT OWING OR REFUND
Example calculation
For the income year ending 30 June 2019 (2018/2019), John has assessable income of $130,200 and allowable deductions of $5,700.
John’s tax payable would be calculated as follows:
Assessable Income – Allowable Deductions = Taxable Income
$130,200 – $5700 = $124,500
Tax on taxable income
$20,797 + (37% x ($124,500 – $90,000)) = $33,562
Medicare Levy
$124,500 x 2% = $2490
LAMITO
$124,500 – $90,000 = $34,500
$34,500 x 3% = $1,035
$1,080 – $1,035 = $45
Tax Payable
($33,562 – $45) + $2,490 = $36,007
Tax offsets or credits reduce the tax payable on taxable income, but tax offsets should not be confused with deductions. Deductions reduce a taxpayer’s assessable income while tax offsets directly reduce the amount of tax payable.
Your assessable income must be declared on your tax return each year. It includes any of the following:
This includes any income you receive for full-time, part-time or casual work. Examples of employment income are:
If you’re receiving a super pension, it may have three different components:
Depending on your age, you may need to declare both the taxed and untaxed elements as income in the financial year you receive the payments, so that your overall tax obligation (or refund) can be determined by the ATO.
If you’re receiving an annuity (i.e. a series of regular payments from a life insurance company), it will also usually have taxable and tax-free components. You’ll need to declare the taxable components.
If you’re receiving government payments like the aged pension or carer payments, they must be declared on your tax return. But it’s important to understand that some government payments are tax-exempt. You must still declare them though because they can affect your eligibility for other government benefits and tax offsets.
This can include:
Any income you receive from running a business must be declared. If you’re a sole trader, you don’t need to lodge a separate business tax return.
If you’re in business in partnership with others, you must declare your share of the partnership’s income or loss as assessable income on your tax return.
If you’re a trustee in a trust, you must declare your share of the trust’s income in your tax return, even if it remained in the trust and you didn’t actually receive it.
If you’re an Australian resident for tax purposes, you must declare any foreign income that you receive, even if it’s already been taxed overseas. The ATO uses a system of credits and exemptions to work out if Australian tax is still payable on any foreign income you’ve earned.
If you’ve raised any income for a project or venture via crowdfunding, some of it may be taxable if you’re carrying on a business or other profit-making scheme
Some of the above forms of assessable income will be automatically provided to the ATO each year by your employer/s and financial institutions where you’ve invested funds.
There are also other payments you might receive that aren’t included in your assessable income. Common examples include:
Eligible deductions reduce your e income and therefore the amount of tax you’re required to pay. The most common deductions are:
These include:
You can claim the cost of managing your tax affairs, including the cost of advice for preparing and lodging your tax return and business activity statements (BAS).
You can claim the cost of any gifts or donations that you make to “deductible gift recipients” (such as registered charities). You can’t claim a donation if you received a personal benefit in exchange for your gift or donation, even if it’s a ticket to win a prize.
Any expenses associated with earning assessable interest, dividend or other investment income (like bank fees, interest on money borrowed to buy shares that have provided you with dividends, or investment management fees).
If you make a personal contribution to your super fund, you can claim a tax deduction provided that you complete an ATO form and send it to your super fund. Your super fund will tax the concessional super rate of 15%.
When claiming any tax deduction, it’s important to keep records so that you can substantiate your claim if you’re ever audited by the ATO.
Your taxable income can be decreased by reducing your assessable income or increasing your deductions. For example, a negative gearing investment strategy relies on offsetting a loss from a negatively geared investment against other income thereby reducing taxable income and therefore tax payable. In other words the investor is increasing their deductions to reduce their taxable income.
Similarly, salary sacrificing an amount into superannuation reduces an individual’s assessable income. This is because the individual is making a pre-tax contribution from their income to their super account. The contribution is deducted at the time the individual is paid and therefore reduces the gross (assessable) income of the individual. This in turn indirectly reduces the taxable income of the individual. Moreover, the super contribution is generally taxed at a concessional rate of 15% in the super fund (subject to the $25,000 contributions cap being complied with).
The Low Income Tax Offset (LITO) was originally introduced by the Government in 1993, providing low income earners who are Australian residents with a tax offset. LITO effectively means that you can earn up to $20,542 before any income tax is payable.
The table below outlines the method for calculating LITO:
| Income | LITO amount |
|---|---|
| $37,000 or less | $445 |
| $37,001 – $66,667 | $445 less ((Taxable Income minus $37,000) x 1.5%)) |
| More than $66,667 | Nil |
Source: ATO
Learn more about how the Low Income Tax Offset (LITO) works.
The Low and Middle Income Tax Offset is available to Australian resident individuals that have taxable income not exceeding $125,333 for an income year during the 2018/2019 to 2021/2022 income years.The Low and Middle Income Tax Offset will operate in addition to the LITO and taxpayers may be entitled to receive both offsets during the 2018/2019 to 2021/2022 income years.
The amount of the offset will depend on the taxpayer’s relevant income level, as set out in the following table:
| Relevant income for the 2018/2019 to 2021/2022 income years | Low and Middle Income Tax Offset amount |
|---|---|
| $37,000 or less | $255 |
| $37,001 – $48,000 | $255, plus 7.5% of the amount of relevant income exceeding $37,000 (to a maximum benefit of $1,080) |
| $48,001 – $90,000 | $1,080 (maximum) |
| $90,001 – $126,000 | $1,080, less 3% of the amount of relevant income exceeding $90,000 |
Source: ATO
Note that the new Low Income Tax Offset will replace both the Low and Middle Income Tax Offset and the LITO in the 2022/2023 and later income years. The new offset will be available to Australian resident individuals if their taxable income for the relevant income year does not exceed $66,667.
Learn more about how the Low and Middle Income Tax Offset (LAMITO) works.
SAPTO is a tax offset that’s available to eligible seniors and pensioners in Australia. In some cases, it can totally eliminate a recipient’s tax liability and their need to lodge a tax return. There are two eligibility requirements for the SAPTO:
1. You must have reached the pension age and be eligible to receive it.
The Age Pension age in Australia currently depends on your date of birth. The minimum age is currently 66 years, and this will progressively rise to 67 for all Australians from 1 July 2023.
2. You must pass a rebate income threshold test to determine whether you’re entitled to a full or partial offset.
Your rebate income is the total of following items:
If you’re single, your total rebate income must be less than $32,279 to be eligible for the maximum SAPTO of $2,230. The SAPTO progressively reduces by 12.5 cents for every dollar over this amount, up to an income level of $50,119, where the offset cuts off completely. If you have a spouse, your combined rebate income must be less than $57,948 for you to both receive the combined spousal SAPTO of $3,204. The spousal SAPTO progressively reduces for individual income levels higher than this amount, up to $83,580, where the offset cuts off completely.
Learn more about how the Seniors and Pensioners Tax Offset (SAPTO) works.
Medicare gives Australian residents access to universal health care. It is partly funded by the Medicare levy, which is 2% of an individual’s taxable income. Individuals pay Medicare levy in addition to the tax they pay on their taxable income.The Medicare levy applies only to residents. The Medicare levy low-income thresholds (at or below which no Medicare levy is payable) and Medicare levy phase-in limits are shown in the table below. If the individual’s income is above the Medicare levy phase-in limits, the full Medicare levy rate is imposed as follows:
Where the income is above the low-income threshold but no more than the phase-in limit, the levy payable is shaded in such that the levy is 10% of the excess of taxable income over the low-income threshold. This is shown below in:
| A | B | C | D | E | |
|---|---|---|---|---|---|
| Income year | Individuals | Families | Pensioners below age pension age | Seniors | + amount for each dependent child/student |
| 2017/2018 | $21,980 | $27,475 | $37,089 | $46,361 | $34,758 | $43,447 | $3,406 | $4,257 | |
| 2016/2017 | $21,655 | $27,068 | $36,541 | $45,667 | $34,244 | $42,805 | $3,356 | $4,195 | |
| 2015/2016 | $21,335 | $26,668 | $36,001 | $45,001 | $33,738 | $42,172 | $3,306| $4,132, | |
| 2014/2015 | $20,896 | $26,120 | $35,261 | $44,076 | $33,044 | $41,305 | $3,238| $4,047, | |
| 2013/2014 | $20,542 | $24,167 | $34,367 | $40,432 | $32,279 | $37,975 | $3,156| $3,713 | |
| 2012/2013 | $20,542 | $24,167 | $33,693 | $39,639 | $32,279 | $37,975 | $3,094 | $3,640 | |
| 2011/2012 | $19,404 | $22,829 | $32,743 | $38,522 | $30,451 | $35,825 | $30,685 | 36,100 | $3,007 | $3,538 |
Source: ATO. Note 2018/2019 figures are not yet available.
An additional Medicare levy surcharge (MLS) is payable by taxpayers without adequate private health insurance. The MLS is calculated, depending on the individual’s surcharge income, at 1%, 1.25% or 1.5% of:
Surcharge income includes:
The Medicare levy surcharge (MLS) thresholds are as follows:
| Income year | Income threshold for individuals | Income threshold for families | Rate of surcharge |
|---|---|---|---|
| From 2014/2015 onwards | $90,000 | $180,000 | See table below |
| 2013/2014 | $88,000 | $176,000 | See table below |
| 2012/2013 | $84,000 | $168,000 | See table below |
| 2011/2012 | $80,000 | $160,000 | 1% |
The MLS thresholds for the 2014/2015 to the 2020/2021 income years are as follows:
| Tiers for 2014/2015 to 2020/2021 | Income threshold for individuals | Income threshold for families | Rate of surcharge |
|---|---|---|---|
| Tier ‘0’ | Up to $90,000 | Up to $180,000 | 0% |
| Tier 1 | $90,001 – $105,000 | $180,001 – $210,000 | 1% |
| Tier 2 | $105,001 – $140,000 | $210,001 – $280,000 | 1.25% |
| Tier 3 | $140,001 and above | $280,001 and above | 1.50% |
A person who does not have private health (hospital cover) insurance on their Lifetime Health Cover base day (usually 1 July following the 31st birthday) but who later in life decides to take out private hospital cover will pay a 2% Lifetime Health Cover (LHC) loading on top of their premium for every year they are aged over 30.
The LHC loading also applies if a person ceases to have private health insurance and then later decides to take out private health insurance again. There is an exception, known as ‘Days of Absence’ which permits someone to be without hospital cover for periods totalling 1,094 days (i.e. three years less one day) during their lifetime, without affecting their loading. This covers small gaps, such as switching from one fund to another.
However, if the total gap period exceeds 1,094 days, the person will pay a 2% loading on re-joining private hospital cover. The loading increases by 2% for every year without cover after that. The LHC is removed after 10 continuous years of private health insurance cover. The private health insurance offset has not applied to the Lifetime Health Cover loading since 1 July 2013.
The private health insurance offset is an amount the government contributes towards the cost of an individual’s private health insurance premiums. The offset can be claimed for premiums paid for a private health insurance policy that provides private patient hospital cover or combined hospital and general cover. The offset is income tested, which means eligibility to receive it depends on an individual’s income. Persons with a higher income may have their offset entitlement reduced or may not be entitled to any offset at all.
The rates and thresholds for the private health insurance offset which apply for the 2016/2017 to 2018/2019 income years are as follows:
| Offset entitlement by income threshold | ||||
|---|---|---|---|---|
| Tier ‘0’ | Tier 1 | Tier 2 | Tier 3 | |
| Singles | Up to $90,000 | $90,001–$105,000 | $105,001–$140,000 | $140,001 or more |
| Couples/families | Up to $180,000 | $180,001–$210,000 | $210,001–$280,000 | $280,001 or more |
| Rate of Medicare levy surcharge | ||||
| All ages | 0% | 1.0% | 1.25% | 1.5% |
| Rate of Private Health Insurance Offset: 1 April 2018 – 31 March 2019 | ||||
| Under 65 years | 25.415% | 16.943% | 8.471% | 0% |
| 65–69 years | 29.651% | 21.180% | 12.707% | 0% |
| 70 years and over | 33.887% | 25.415% | 16.943% | 0% |
| Rate of Private Health Insurance Offset: 1 April 2017 – 31 March 2018 | ||||
| Under 65 years | 25.934% | 17.289% | 8.644% | 0% |
| 65–69 years | 30.256% | 21.612% | 12.966% | 0% |
| 70 years and over | 34.579% | 25.934% | 17.289% | 0% |
| Rate of Private Health Insurance Offset: 1 July 2016 – 31 March 2017 | ||||
| Under 65 years | 26.791% | 17.861% | 8.930% | 0% |
| 65–69 years | 31.256% | 22.326% | 13.395% | 0% |
| 70 years and over | 35.722% | 26.791% | 17.861% | 0% |
The Medicare levy surcharge and private health insurance offset income thresholds were paused at the 2014/2015 amounts from 1 July 2015 and will remain unchanged for six years from 2014/2015 to 2020/2021. The private health insurance income thresholds for offset purposes are normally adjusted annually on 1 April. The annual adjustment has been paused for three years from 2015/2016.
Learn more about income tax in the following SuperGuide articles:
Disclaimer: The contents of this article are for the purposes of providing general information only. Persons should seek appropriate advice from a tax adviser, accountant or financial adviser before undertaking any investments or strategies with respect to their tax or superannuation interests.
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