What are Australia’s marginal tax rates?

What is a marginal tax rate?

Your income in Australia is not taxed at a single, flat rate. Instead, we use what’s known as a ‘progressive tax system’. This means that the tax you pay is determined by a series of brackets. The higher your taxable income for the year, the higher your tax bracket, and the higher the rate you’ll pay.

A common misconception is that when you move into a higher tax bracket, your whole income is taxed at that higher rate. This is not the case. As you move up through the tax brackets, your income gets taxed in chunks. Your ‘marginal’ tax rate is the rate of tax you pay on the top portion of your income, not all of it.

How do marginal tax rates work?

Think of the tax system as a series of buckets that you fill up over the financial year with your taxable income.

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.

The first bucket (anything you earn under $18,200) is tax-free, assuming you take advantage of the tax-free threshold. Any earnings that spill over into the next bucket will be taxed at a rate of 16%, and so on, and then any earnings in the next bucket will be taxed at a rate of 30%, and so on.

When you reach your final bucket for the year, the rate that you pay on that specific portion of your income is your marginal tax rate. According to the ATO, different sets of individual tax rates apply for Australian residents, foreign residents and working holiday-makers.

Marginal tax rates: a case study

To understand marginal tax rates, consider the following example. Brad is an apprentice who earns a taxable income of $65,000 per year, and is an Australian resident for tax purposes.

• Brad claims the tax free threshold, so he does not pay tax on any money he earns this year up to $18,200.
• For every dollar Brad earns between $18,201 and $45,000, he pays 16c on the dollar, for a total of $4,288.
• For every dollar Brad earns between $45,001 and $135,000, he pays 30c on the dollar.

Because Brad’s income is $65,000, approximately $19,999 of his income (the top portion) will be taxed at a rate of 30%. This is his marginal tax rate.

Marginal tax rates 2025-26 for Australian Residents

For Australian residents, the marginal tax rates for 2025-26 are shown in the table below.

Marginal tax rates 2025-26 – Australian residents

Source: Australian Taxation Office. Taxable income and tax figures are applicable for the year 1 July 2025 to 30 June 2026. The above rates do not include the Medicare levy of 2%.

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.

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 estimate how much income tax you’ll need to pay for the 2025-26 financial year.

Marginal tax rates 2026-27 for Australian Residents

As part of the 2026-27 Budget, the federal government rolled out tax cuts that will affect the marginal tax rate, as a cost of living measure.

• From 1 July 2026, the 16 per cent tax rate on taxable income between $18,201 and $45,000 will drop to 15 per cent.
• From 1 July 2027, the tax rate will drop to 14 per cent.

That means that for the 2026-27 tax year, Australian marginal tax rates will look like this:

Marginal tax rates 2026-27 – Australian residents

Taxable income and tax figures are applicable for the year 1 July 2025 to 30 June 2026. The above rates do not include the Medicare levy of 2%.

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 2025-26 – foreign residents

Source: Australian Taxation Office. Taxable income and tax figures are applicable for the year 1 July 2025 to 30 June 2026. 

These aren’t expected to change in financial year 2026-27.

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 2025-26 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 2025-26 – working holiday makers

Source: Australian Taxation Office. Taxable income and tax figures are applicable for the year 1 July 2025 to 30 June 2026.

These aren’t expected to change in financial year 2026-27.