What are Australia’s marginal tax rates?

What are the marginal tax rates in Australia?

Personal income tax rates in Australia are not generally set as a single flat percentage of your income. We have a progressive tax rate system, which means that as your income rises, you will generally pay more tax and potentially have a higher marginal tax rate.

As a guide, if your taxable income for the 2024-25 financial year was $45,000, your marginal tax rate would be 16%, according to the Australian Taxation Office (ATO). However, if your income was a bit higher, say $47,000, you would have moved up to the next tax bracket, where your marginal tax rate would be 30%.

What is a marginal tax rate?

Your marginal tax rate refers to the highest percentage rate of tax you pay. It only applies to the portion of your taxable income that falls within your highest income tax bracket, not your whole income.

For example, if your taxable income was $50,000 in 2024-25, you would pay 16c on every dollar above $18,200 up to $45,000 (for a total of $4,288), plus a marginal tax rate of 30c on every dollar above $45,000. This example assumes you make use of the tax-free threshold for the first $18,200 of your income, and does not factor in the Medicare levy of 2% that most Australians also have to pay.

You will also generally have to pay extra tax if you don’t have a tax file number. You can use online calculators, such as Canstar’s Tax and Pay Calculator and Moneysmart’s Income Tax Calculator to work out how much income tax you need to pay in 2024-25.

Marginal tax rates 2024-25 for Australian Residents

According to the ATO, different sets of individual tax rates apply for Australian residents, foreign residents and working holiday makers.

For Australian residents, the marginal tax rates for 2024-25 are shown in the table below.

Marginal tax rates 2024-25 – Australian residents

Source: Australian Taxation Office. Taxable income and tax figures are applicable for the year 1 July 2024 to 30 June 2025. The above rates do not include the Medicare levy of 2%.

Your taxable income is the income you must pay tax on (such as money you’ve received from employment, government payments and investments) minus any tax deductions and offsets. You generally won’t pay any tax on the first $18,200 of taxable income you earn. This is known as the ‘tax-free threshold’. Above this amount, you usually need to pay a percentage of any income you earn over each income threshold.

Using the table above (provided by the ATO), if your taxable income was between $18,201 and $45,000, your marginal tax rate would be 16%, which you would pay on every dollar above the tax-free threshold of $18,200.

Different marginal tax rates apply to each income threshold. Generally the higher your income, the more likely you are to reach a higher income threshold and tax rate. These rates don’t include additional levies such as the 2% Medicare levy or the Medicare Levy Surcharge, which certain taxpayers are liable to pay. Children (those aged under 18 years) may also be subject to different tax rates. The Australian Federal Government will sometimes make changes to these rates and reflect them in the tax rates for the next financial year. It’s important to make note of any of these tax rate changes, as they may affect you.

Marginal tax rates for foreign residents

You can use the ATO’s online tool to work out if you are a foreign resident for tax purposes. According to the ATO, you will be considered a foreign resident for tax purposes if you do not satisfy any of the four residency tests. The ATO states foreign residents must declare any income earned in Australia including employment income, rental income, Australian pensions and annuities and capital gains on Australian assets. The ATO notes that foreign residents for tax purposes do not have the benefit of the tax-free threshold that applies to Australian residents. Instead, foreign residents will pay tax from the first dollar they earn in Australia. They can expect to pay a marginal tax rate between 30% and 45%. The ATO advises that foreign residents do not have to pay the Medicare Levy.

Marginal tax rates 2024-25 – foreign residents

Source: Australian Taxation Office. Taxable income and tax figures are applicable for the year 1 July 2024 to 30 June 2025. 

Marginal tax rates for working holiday makers

The ATO states that for tax purposes, working holiday makers are those who are on 417 (Working Holiday) and 462 (Work and Holiday) subclass visas. As they are typically classed as foreign residents for tax purposes, working holiday makers also do not benefit from the tax-free threshold. The table below sets out the income tax rates that apply to working holiday makers in the 2024-25 financial year. The ATO notes that if no tax file number (TFN) is provided, you will have to pay a 45% tax on all your income, rather than just the portion of it above $190,000. The ATO advises that working holiday makers (classified as foreign residents for tax purposes) do not have to pay the Medicare Levy.

Marginal tax rates 2024-25 – working holiday makers

Source: Australian Taxation Office. Taxable income and tax figures are applicable for the year 1 July 2024 to 30 June 2025.

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