ATO Tax Brackets 2026-27

Complete guide to 2026-27 Australian income tax brackets with Stage 3 tax cuts, LITO phase-out and worked examples for residents, non-residents and WHMs.

By Mottalib Radif, MBA · Updated June 2026

2025-26 Income Tax Brackets for Australian Residents

The Australian Tax Office (ATO) applies a progressive tax system for the 2025-26 financial year, which runs from 1 July 2025 to 30 June 2026. Under a progressive system, your income is divided into portions (brackets), and each portion is taxed at a different rate. Only the income within each bracket is taxed at that bracket's rate. This means that moving into a higher bracket never results in your overall income being taxed at the higher rate. The brackets below apply to Australian residents for tax purposes.

Australia's income tax system dates back to 1915 when the federal government introduced its own income tax alongside existing state taxes. State income taxes were abolished in 1942 during World War II, and the federal government has been the sole collector of individual income tax since. The progressive structure, where higher income is taxed at higher rates to fund public services proportionally to ability to pay, has been a feature of the system throughout its entire history. The specific brackets and rates, however, have changed dozens of times in response to economic conditions, inflation, and policy objectives.

To illustrate how progressive taxation works in practice: if you earn $90 000, your tax is calculated as follows. The first $18 200 is tax-free ($0). The next $26 800 (from $18 201 to $45 000) is taxed at 16%, producing $4 288. The remaining $45 000 (from $45 001 to $90 000) is taxed at 30%, producing $13 500. Total tax before offsets: $17 788. After applying the Low Income Tax Offset (if eligible), the final amount may be slightly lower. Your marginal rate is 30% (the rate on the last dollar earned), but your effective rate is only 19.8% ($17 788 divided by $90 000).

What Changed with the Revised Stage 3 Tax Cuts

The Stage 3 tax cuts represent the most significant reform to Australia's income tax brackets in over a decade. Originally legislated by the Morrison government in 2019, the initial plan would have created a flat 30% rate for all income between $45 001 and $200 000 from 1 July 2024. This plan was designed to simplify the tax system by reducing the number of effective brackets but was criticised for disproportionately benefiting higher earners while providing no benefit at all to workers earning below $45 000.

In January 2024, the Albanese government announced a revised version of the cuts that instead distributed the benefits more broadly across all income levels. The revised Stage 3 cuts, which took effect on 1 July 2024 and continue to apply for 2025-26, made the following changes:

• The 19% rate was reduced to 16%, providing an immediate benefit to every worker earning above $18 200
• The 32.5% bracket was lowered to 30% and its ceiling was extended from $120 000 to $135 000
• The 37% bracket now starts at $135 001 and extends to $190 000 (up from $180 000)
• The 45% top rate now applies from $190 001 (up from $180 001)

The practical result is that every Australian resident taxpayer earning above the tax-free threshold receives a tax cut, with the largest absolute savings going to higher earners but the largest percentage savings going to lower earners. A worker on $40 000 saves $654 per year (a 15.8% reduction in their tax bill), while a worker on $200 000 saves $4 329 (a 7.1% reduction). Under the original plan, the worker on $40 000 would have received nothing while the worker on $200 000 would have saved $9 075.

Tax Savings from the Revised Stage 3 Cuts

Tax amounts before LITO. Medicare levy not included. Fortnightly saving based on 26 pay periods per year.

Understanding the Tax-Free Threshold

Australia's $18 200 tax-free threshold means the first $18 200 of taxable income earned by a resident taxpayer in each financial year is not subject to income tax. This threshold has been at $18 200 since 1 July 2012, when it was increased from $6 000 as part of the Clean Energy Act reforms (which accompanied the introduction of the carbon price). Prior to 2012, the effective tax-free threshold had been gradually increased through a combination of the formal threshold and the Low Income Tax Offset.

Internationally, Australia's tax-free threshold is moderate. The United Kingdom's personal allowance is approximately AUD $20 000, while the United States' standard deduction for a single filer is about AUD $24 000 (though the US system is structured differently, using deductions rather than a threshold). New Zealand does not have a tax-free threshold at all; tax applies from the first dollar at a rate of 10.5%. Germany's basic tax-free allowance is approximately AUD $18 500, similar to Australia.

If you have more than one job, you can only claim the tax-free threshold from one employer. You indicate this choice on your Tax File Number (TFN) Declaration when you start each job. If you claim the threshold from multiple employers, too little tax will be withheld during the year and you will likely face a tax bill when you lodge your annual return. The general rule is to claim the threshold from the employer that pays you the most, and not claim it from any other employer. If you do not claim the threshold, your employer withholds tax as if the first $18 200 is taxable at 16%, which results in over-withholding that is refunded when you lodge your return.

Low Income Tax Offset (LITO)

The Low Income Tax Offset (LITO) is a non-refundable tax offset that further reduces the tax payable for residents with taxable income of $66 667 or less. LITO is not claimed separately; it is automatically calculated and applied by the ATO when you lodge your annual tax return.

• Full offset of $700 for taxable incomes up to $37 500
• Reduces by 5 cents per dollar between $37 500 and $45 000 (dropping to $325 at $45 000)
• Reduces by 1.5 cents per dollar between $45 000 and $66 667 (reaching $0 at $66 667)
• LITO is non-refundable: it can reduce your tax to zero but cannot create a refund on its own

The practical effect of LITO is to raise the effective tax-free threshold from $18 200 to approximately $22 575. At $22 575, the tax calculated on the income ($22 575 minus $18 200 equals $4 375, taxed at 16% equals $700) is exactly offset by the $700 LITO, resulting in zero tax payable. This means Australians earning up to approximately $22 575 pay no income tax at all, which is more generous than the headline $18 200 threshold suggests.

Marginal vs. Effective Tax Rates

One of the most common misconceptions about the Australian tax system is the belief that moving into a higher tax bracket means all your income is taxed at the higher rate. This misunderstanding leads some workers to turn down pay rises, refuse overtime, or avoid bonuses because they believe the extra income will "cost them more in tax than it is worth." This is never true under a progressive tax system.

Your marginal tax rate is the rate applied to the last dollar of your taxable income. It tells you how much of each additional dollar you keep. If your marginal rate is 30%, you keep 70 cents of every extra dollar earned. Your effective tax rate is the total tax paid divided by your total income. It tells you the average rate across all your income and is always lower than your marginal rate because of the tax-free threshold and the lower rates on the initial portions of your income.

This distinction has important practical applications. When evaluating the after-tax value of a pay rise, overtime, or a bonus, use your marginal rate. When budgeting your overall take-home pay or comparing your tax burden across years, use your effective rate. A worker earning $80 000 has a marginal rate of 30% but an effective rate of only about 17.2% (including LITO, excluding Medicare levy), meaning they keep nearly 83 cents of every dollar earned on average.

Effective Tax Rates for Common Salaries (2025-26)

Tax payable includes LITO where applicable. "Effective Rate (incl. Medicare)" adds the 2% Medicare levy to the tax-only effective rate. MLS not included.

Non-Resident Tax Brackets 2025-26

Non-residents for tax purposes do not receive the $18 200 tax-free threshold, cannot claim LITO, and are not liable for the Medicare levy (but also cannot access Medicare services). Tax is applied from the first dollar of Australian-sourced income at the following rates:

Despite being exempt from the Medicare levy (2%), non-residents pay significantly more total tax than residents at most income levels. For example, a non-resident earning $80 000 pays $24 000 in tax (30% on the entire amount), while a resident pays approximately $14 788 in income tax plus $1 600 in Medicare levy, totalling $16 388. The resident saves $7 612. The crossover point where non-residents pay less total tax than residents (due to the Medicare levy exemption) does not occur at any realistic salary level, because the loss of the tax-free threshold and lower brackets always outweighs the 2% Medicare levy saving.

Tax residency status is determined by the ATO based on multiple factors, including where you ordinarily reside, the duration and purpose of your stay in Australia, your family and social ties, and whether you maintain a permanent home in Australia. Holding an Australian passport or visa does not automatically make you a resident for tax purposes, and conversely, many people on temporary visas are treated as tax residents. If your status is unclear, the ATO provides a residency determination tool on its website, or you can apply for a private ruling.

Working Holiday Maker (WHM) Tax Brackets

Working holiday makers on subclass 417 and 462 visas have their own tax rates, which were introduced in 2017 following the "backpacker tax" debate. These rates represent a compromise between the original proposal (taxing WHMs as non-residents from the first dollar at 32.5%) and the previous arrangement (treating many WHMs as residents with access to the tax-free threshold).

The 15% rate on the first $45 000 is specifically designed for the working holiday maker population. Most WHMs earn significantly less than $45 000 during their time in Australia (typical earnings are $15 000 to $35 000 per year from fruit picking, hospitality, farm work, and construction labouring), so the 15% flat rate on the first bracket simplifies their tax obligations while ensuring the government collects revenue from this transient workforce. WHMs do not receive the tax-free threshold and cannot claim LITO.

How to Reduce Your Taxable Income

There are several legitimate strategies to reduce your taxable income and the tax you pay within the 2025-26 framework:

• Concessional super contributions: Salary sacrifice into super up to the $30 000 annual concessional cap. Contributions are taxed at 15% inside the fund rather than your marginal rate. For someone earning $100 000 (marginal rate 30% plus 2% Medicare levy), sacrificing $10 000 saves approximately $1 700 in tax. Division 293 adds an extra 15% tax if your income plus contributions exceeds $250 000. Use the carry-forward rule to contribute unused cap amounts from the previous five years if your super balance is under $500 000.
• Work-related deductions: Claim expenses directly related to earning your income, including tools and equipment, uniforms and protective clothing, union and professional association fees, travel between work sites (not your regular commute), and home office expenses. The ATO's revised fixed-rate method allows 67 cents per hour for home office expenses, or you can claim actual costs if they produce a higher deduction. All claims must be substantiated with records.
• Private health insurance: If your income exceeds $93 000 (single) or $186 000 (family), holding a complying private hospital policy avoids the Medicare Levy Surcharge of 1% to 1.5%, saving $930 to $3 000 or more per year depending on your income tier. A basic hospital policy often costs less than the MLS.
• Negative gearing: If you own an investment property where costs (mortgage interest, maintenance, depreciation, insurance, rates) exceed rental income, the net loss offsets your salary income, reducing taxable income. A $10 000 net loss at a 30% marginal rate saves $3 000 in tax. This strategy only makes long-term financial sense if the property appreciates in value.
• Charitable donations: Donations of $2 or more to registered deductible gift recipients (DGRs) are tax deductible. A $1 000 donation at a 30% marginal rate reduces your tax by $300. The full list of DGRs is available on the ABN Lookup website.
• Self-education expenses: If education is sufficiently connected to your current employment (it maintains or improves skills required for your current role), the costs may be deductible. This includes course fees, textbooks, travel to study locations, and laptop depreciation if used for study. A course that qualifies you for an entirely new career is generally not deductible under current rules.

Stage 3 Tax Cuts: The Full Story

The Stage 3 tax cuts have a complex political history. The original plan was announced by then-Treasurer Scott Morrison in the 2018-19 Budget as the third and final stage of a multi-year personal income tax plan. Stage 1 (effective 2018-19) delivered a one-off LMITO boost. Stage 2 (effective 2020-21) raised the top of the 19% bracket from $37 000 to $45 000 and the top of the 32.5% bracket from $90 000 to $120 000. Stage 3, originally scheduled for 1 July 2024, proposed abolishing the 37% bracket entirely and creating a flat 30% rate from $45 001 to $200 000.

The original Stage 3 proposal was controversial because it delivered no benefit to anyone earning below $45 000 (approximately 40% of taxpayers) while providing savings of up to $9 075 for those earning $200 000 or more. Both major parties, however, committed to implementing the original plan through two elections (2019 and 2022). In January 2024, Prime Minister Anthony Albanese announced the revised version, citing the need to provide cost-of-living relief to a broader range of workers, particularly those on lower incomes who had received no benefit under the original design.

The revised cuts passed Parliament in February 2024 and took effect on 1 July 2024. Because the changes were implemented through updated PAYG withholding schedules, workers began receiving the benefit immediately in their regular pay without needing to wait until tax time. The 2025-26 financial year is the second full year under the revised Stage 3 brackets, with no further changes to income tax rates announced or legislated. This provides stability for financial planning, salary negotiations, and investment decisions going forward.

Common Misconceptions About Australian Tax

• "I should not work overtime because the tax rate is too high." Overtime is taxed at your marginal rate, but you always take home more money by earning more. If your marginal rate is 30%, you keep 70 cents of every extra dollar. Turning down $1 000 in overtime to avoid $300 in tax means you lose $700 in after-tax income. The only scenario where earning more can be financially disadvantageous is when it pushes you past a cliff in the HECS/HELP repayment thresholds, where a small income increase triggers a repayment on your entire income.
• "A pay rise could push me into a higher bracket and I would earn less." This is categorically incorrect under a progressive tax system. Only the portion of income above each bracket threshold is taxed at the higher rate. A pay rise from $44 000 to $46 000 means only $1 000 (the amount above $45 000) is taxed at 30% instead of 16%, an extra $140 in tax on a $2 000 raise. Your total after-tax income always increases with higher gross income.
• "Non-residents pay less tax because they do not pay the Medicare levy." While non-residents are exempt from the 2% Medicare levy, they lose the $18 200 tax-free threshold and LITO, and pay 30% from the first dollar. For a worker earning $80 000, a resident pays approximately $16 388 total (tax plus levy) while a non-resident pays $24 000. The resident saves $7 612.
• "I can claim any work expense as a deduction." Deductions must be directly related to earning your income, not reimbursed by your employer, and supported by records. Your daily commute, regular clothing, childcare, and personal phone use are not deductible. The ATO uses data matching to identify unusual claim patterns and may audit returns with claims that exceed industry averages.
• "Everyone gets a tax refund." Approximately 75% of individuals receive a refund, but this simply means their employer withheld more tax than their actual liability. The remaining 25% either owe money (due to under-withholding, investment income, or multiple jobs) or have a nil result. A large refund is not a sign of good tax management; it means you gave the government an interest-free loan during the year.

Sources

• ATO: Tax Rates for Australian Residents 2025-26
• ATO: Tax Rates for Foreign Residents
• ATO: Tax Rates for Working Holiday Makers
• ATO: Low Income Tax Offset