Tax basics for Australians

Australia taxes you on your taxable income. That is your total assessable income (wages, interest, dividends, rent, business profits and capital gains) minus the deductions you are allowed to claim. The more taxable income you have, the higher the rate on each extra dollar.

The system is progressive, which is the part most people get wrong. Moving into a higher bracket does not mean all of your income is taxed at the higher rate. Only the dollars above the bracket threshold are taxed at that rate.

The financial year runs from 1 July to 30 June, and the tax year you are living through right now is 2026–27. Your employer withholds tax from each pay and sends it to the Australian Taxation Office (ATO). After 30 June, you lodge a tax return to square up what you actually owed against what was already paid. If too much was withheld, you get a refund. If too little, you pay the difference.

These are the ATO's resident tax rates for the 2026–27 income year. The first bracket now taxes income between $18,201 and $45,000 at 15 cents in the dollar, down from 16 cents in 2025–26. A further cut to 14 cents is legislated for 1 July 2027.

These rates do not include the Medicare levy, which we cover below. Here is what the table means in real dollars:

Your marginal rate is the tax on your next dollar, not your average rate. At $100,000 you pay 30 cents of tax plus 2 cents of Medicare levy on each extra dollar, but your average rate across the whole $100,000 is only about 22.5%.

Want to test your own numbers? Our finance calculators can help you see how a pay rise or a deduction changes the result.

On top of income tax, most residents pay the Medicare levy of 2% of taxable income. It helps fund the public health system. Low-income earners may pay a reduced levy or none at all.

The Medicare levy surcharge is a separate, extra charge of 1% to 1.5% that applies if you earn above certain income thresholds and do not have an appropriate level of private hospital cover. The thresholds start at around $100,000 for singles and are higher for families, and they change each year, so confirm the current figures with the ATO.

If you are close to the threshold, it is worth comparing the cost of hospital cover with the surcharge. Sometimes the premium is cheaper than the surcharge you would otherwise pay, and you get the cover as well.

People often mix these up. A deduction reduces your taxable income, so it saves you tax at your marginal rate. A tax offset reduces the tax you owe dollar for dollar after it has been calculated.

The most common offset is the Low Income Tax Offset (LITO). It is worth up to $700 and is applied automatically when you lodge, phasing out as your income rises toward about $66,667.

The three golden rules for deductions

The ATO will only let you claim a work-related expense if all three of these are true:

1. You spent the money yourself and were not reimbursed.
2. It is directly related to earning your income.
3. You have a record to prove it, such as a receipt, invoice or bank statement.

Common deductions that people legitimately claim include:

• Working from home costs such as electricity and internet, using the ATO's fixed rate method or your actual costs.
• Work tools and equipment, including laptops or phones used for work. Items over $300 are usually claimed over several years.
• Uniforms with a logo, protective clothing and the cost of laundering them.
• Union fees, professional memberships and work-related courses.
• Gifts to registered charities of $2 or more.

Your employer must pay the superannuation guarantee of 12% of your ordinary time earnings into your super fund on top of your salary. That money is taxed at a flat 15% inside the fund, which is usually lower than your marginal rate.

You can add to this with extra concessional (pre-tax) contributions, and the cap for 2026–27 is $32,500 a year, including what your employer pays. If you go over the cap, the excess is taxed at your marginal rate. Unused cap space can sometimes be carried forward for up to five years if your total super balance is under $500,000.

Super is a big topic of its own. Our upcoming superannuation guide will cover how to pick a fund, compare fees and combine multiple accounts.

Money you earn from investing is generally taxable, but the way it is taxed depends on the type of income.

• Interest from savings accounts and term deposits is added to your taxable income and taxed at your marginal rate.
• Dividends from Australian companies usually come with franking credits. These represent tax the company has already paid (at 30%) and are credited against your own tax bill. If your rate is lower than 30%, you can even get the difference back as a refund.
• Rent from an investment property is taxable income, but you can deduct costs such as interest, rates, insurance, repairs and depreciation on certain assets.
• Capital gains arise when you sell an asset such as shares, property or cryptocurrency for more than it cost. The gain is added to your taxable income in the year you sell.

If you sell at a loss, you cannot deduct it from your wages, but you can use it to cancel out capital gains, now or in future years. Keep a clear record of what you paid, when you bought, and when you sold.

If you have a HELP, VSL or similar study debt, you repay it through the tax system once your income passes the repayment threshold, which is roughly $69,500 for 2026–27. Repayments now work on a marginal basis, so only the income above the threshold is used to calculate what you pay, rather than your whole income jumping into a higher repayment rate.

Your employer withholds the repayment from your pay if you have given them a tax file number declaration that flags the debt, and the ATO settles the final amount when you lodge. Compulsory repayments are not tax deductible, but voluntary repayments are a quick way to cut down the balance and indexation that is applied each year.

The tax return process is easier than most people expect, especially if your finances are simple.

1. Wait for your income statement to be finalised. Employers report your income to the ATO through Single Touch Payroll. Check in myGov that your employer has marked it as "tax ready" before you lodge.
2. Open myTax. You will need a myGov account linked to the ATO. The system pre-fills most of your income, bank interest, dividends and private health information.
3. Check the pre-filled details. Pre-fill can be incomplete or late, particularly for dividends and share sales. Add anything that is missing.
4. Add your deductions. Only claim what you can show records for and be ready to explain how you worked out each amount.
5. Lodge, then watch for your notice of assessment. Many online returns are processed within about two weeks. Check that the refund goes to the right bank account.

The deadline for lodging your own return is 31 October. For the 2025–26 income year, that is 31 October 2026. If you use a registered tax agent and are on their client list before the deadline, you may get extra time. Missing your deadline can bring a failure-to-lodge penalty, even if you are owed a refund.

• Claiming without records. A deduction with no evidence is the first thing the ATO knocks back.
• Forgetting side income. Gig work, freelancing, online sales and rental income all count, even if you were not paid through a payslip.
• Missing interest and dividends. The ATO matches data from banks and share registries, so unreported amounts tend to be found.
• Copying last year's claims. Your circumstances change, and so do the rules. Review each deduction every year.
• Ignoring capital gains. Selling shares or crypto, even to swap one for another, can trigger tax.
• Leaving it to the last minute. A rushed return is more likely to contain mistakes and delays any refund.

Made an error? You can ask the ATO to amend a lodged return. It is better to correct a mistake yourself than to wait for the ATO to find it.