Income tax

The Australian income tax system for individuals is based on marginal tax rates and income thresholds. The higher a person’s taxable income in a financial year (July 1 to June 30), the more tax they pay.

In addition, most Australians pay a Medicare levy of 2% of their taxable income. Those earning higher taxable income amounts are also liable for an additional Medicare levy surcharge of 1 to 1.5%.

A person’s taxable income sources can include:

  • employment income,
  • super pensions and annuities (if they aren’t tax-free),
  • some government benefits,
  • investment income,
  • business, partnership and trust income,
  • foreign income, and
  • crowdfunding income.

An individual can reduce their taxable income by claiming tax deductions. Common tax deductions include:

  • work-related expenses,
  • the cost of managing tax affairs,
  • gifts and donations,
  • interest, dividend and other investment income deductions, and
  • personal super contributions.

Individuals can also reduce their tax payable if they are eligible for tax offsets, such as:

It’s important to understand that unlike tax deductions, tax offsets can only be used to reduce the amount of tax payable, they can’t be used to generate a tax refund from the Australian Taxation Office (ATO). Any unused tax offset is non-refundable.