What are Australia’s marginal tax rates?

TAMIKA SEETO
Finance Journalist · 28 January 2021
Your marginal tax rate will depend on your taxable income each financial year. In this article, we set out the current marginal tax rates in Australia.

Income tax rates are not generally set as a single flat percentage of your income. Australia has a progressive tax rate system. This means that the more income you earn, the more tax you typically pay and the higher your marginal tax rate will likely be.

What are marginal tax rates?

Your marginal tax rate is the biggest 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 2020/21, you would pay $5,092 plus a marginal tax rate of 32.5% on every dollar above $45,000.

You can see an example of how to calculate income tax manually on Canstar. You can also use online calculators, such as Canstar’s Tax and Pay Calculator and Moneysmart’s Income Tax Calculator.

What are the current marginal tax rates in Australia?

According to the Australian Taxation Office (ATO), different sets of individual tax rates apply for:

For Australian tax residents

The following income tax rates apply to Australian residents for tax purposes in the 2020/21 financial year:

Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $45,000 19c for each $1 over $18,200
$45,001 – $120,000 $5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000 $29,467 plus 37c for each $1 over $120,000
$180,001 and over $51,667 plus 45c for each $1 over $180,000

Source: ATO, October 2020. Taxable income and tax figures are applicable for the year 1 July 2020 to 30 June 2021.

Your taxable income is the income you must pay tax on (such as money 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 will usually need to pay a percentage of any income you earn over each income threshold.

Using the table provided by the ATO, if your taxable income was between $18,201 and $45,000, your marginal tax rate would be 19%, which you would pay on every dollar above the tax-free threshold. If your taxable income was between $45,001 and $120,000 then your marginal tax rate would be 32.5%; and if it was between $120,001 and $180,000, your marginal tax rate would be 37%. The highest marginal tax rate in Australia is currently 45% for taxable incomes $180,001 and over.

These rates don’t include additional levies such as the Medicare Levy and/or Medicare Levy Surcharge, which certain taxpayers are liable to pay. Children (those aged under 18 years) may also be subject to different 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 says foreign residents must declare any income made in Australia including employment income, rental income, Australian pensions and annuities and capital gains on Australian assets.

Foreign residents for tax purposes do not receive a tax-free threshold. Instead, foreign residents will pay tax from the first dollar they earn in Australia. They can expect to pay a marginal tax rate between 32.5% and 45%.

Taxable income Tax on this income
0 – $120,000 32.5c for each $1
$120,001 – $180,000 $39,000 plus 37c for each $1 over $120,000
$180,001 and over $61,200 plus 45c for each $1 over $180,000

Source: ATO, October 2020. Taxable income and tax figures are applicable for the year 1 July 2020 to 30 June 2021.  

The ATO advises that foreign residents do not have to pay the Medicare Levy.

For working holiday makers

Working holiday makers are those who are on 417 (Working Holiday) and 462 (Work and Holiday) subclass visas.

Below are the income tax rates that apply to working holiday makers in the 2020/21 financial year:

Taxable income Tax on this income
0 – $45,000 15%
$45,001 – $120,000 $6,750 plus 32.5c for each $1 over $45,000
$120,001 – $180,000 $31,125 plus 37c for each $1 over $120,000
$180,001 and over $53,325 plus 45c for each $1 over $180,000

Source: ATO, October 2020. Taxable income and tax figures are applicable for the year 1 July 2020 to 30 June 2021.


There are a few different ways to potentially reduce the amount of income tax you pay each year. For example, by claiming tax deductions or tax offsets. Making concessional (before-tax) contributions to your superannuation can be another way to reduce your taxable income. However, it’s a good idea to check the rules about concessional (and non-concessional) contributions before making a decision. You may also want to seek professional advice.

If you are looking for ways to boost your superannuation, you may want to compare funds to make sure you are getting competitive returns, although bear in mind that past performance is not a reliable indicator of future performance. As well as this, you should look at factors like fees, investment options, insurance and other services on offer.

If you’re comparing superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group specified above.

You can compare a wider selection of funds using Canstar’s comparison tables.

Cover image source: CreativeFireStock/Shutterstock.com

This article was originally written by James Hurwood. It was reviewed by our Sub Editor Tom Letts and Finance & Lifestyle Editor Shay Waraker before it was updated, as part of our fact-checking process.

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