Important revisions to the income tax system in Australia during the 2024-25 financial year will impact the lives of millions of taxpayers across the country.
Whether you are in a salaried position, self-employed or retired, knowing the changes is vital to inform financial planning.
This blog covers the comprehensive breakdown of the updated tax brackets, key offsets, and ways to optimise your tax position step by step.
Australian Income Tax Rates For 2024-25 (Residents)
The Australian taxation system is progressive, meaning higher income levels are taxed at higher rates.
Below are the updated tax rates:
| Income Threshold | Tax Rate | Tax Payable On This Income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | 45% | $51,638 plus 45c for each $1 over $190,000 |
Key Tax Savings From The 2024 Cuts
The 2024 tax cuts provide relief across all income brackets, with significant reductions in payable tax for middle-income earners.
The table below illustrates the tax savings for various income levels compared to the previous financial year:
| Income | Tax Paid (2023-24) | Tax Paid (2024-25) | Tax Cut |
|---|---|---|---|
| $20,000 | $342 | $288 | $54 |
| $50,000 | $6,717 | $5,788 | $929 |
| $100,000 | $22,967 | $20,788 | $2,179 |
| $190,000 | $56,167 | $51,638 | $4,529 |
How Income Tax is Calculated?
Your income tax is determined using the following formula:
Assessable Income – Allowable Deductions = Taxable Income
- Apply tax rates to your taxable income to calculate Gross Tax Payable.
- Subtract tax offsets (e.g., LITO) from Gross Tax Payable to determine Net Tax Payable.
- Add Medicare Levy (and surcharge, if applicable).
- Subtract any credits or refundable offsets to calculate the final Amount Owing or Refund.
Example Calculation (2024-25)
For a taxpayer earning $90,000:
- First $18,200: Tax-free.
- $18,201–$45,000: Taxed at 16% = $4,288.
- $45,001–$90,000: Taxed at 30% = $13,500.
Total Tax Payable = $4,288 + $13,500 = $17,788 (excluding offsets and Medicare Levy).
Progressive Tax System
Australia’s progressive tax system means only the income exceeding each threshold is taxed at the corresponding rate. For instance, if you earn $50,000 in 2024–25, the calculation looks like this:
- $0–$18,200: $0
- $18,201–$45,000: 16% = $4,288
- $45,001–$50,000: 30% = $1,500
- Total Tax: $5,788
This structure ensures fairness while accommodating different income levels.
Tax-Free Threshold
The first $18,200 of your income is tax-free, making it a cornerstone of Australia’s tax system. By ensuring low-income earners have minimal tax obligations, this threshold supports financial stability for a broad demographic.
Offsets And Deductions
Tax offsets like the Low Income Tax Offset (LITO) and deductions such as work-related expenses further reduce your taxable income. Understanding and utilising these can lower your net tax liability.
Understanding The Medicare Levy
The Medicare Levy is 2% of the taxable income paid on behalf of the National Health Service of Australia. The medicare levy surcharge applies for the service users and derives between 1%-1.5% of the income paid by an earner receiving high profits without a private cover of health insurance.
Tax Management Guides
- Record Keeping: Maintain oral and written documents with regards to income, expenses, and deductions.
- Super Contributions: Explore with your employer the opportunities for salary sacrifice or voluntary contributions to a superannuation fund.
- Consultant: Engage an expert to maximise its deductions by considering offsets.
- Planning: Understanding the tax brackets and thresholds will give room for lessened anxiety in the tax time.
Strategies To Manage Tax Effectively
Superannuation Contributions
- You can increase your super through salary sacrifice or personal contributions, both categories involved in reducing personal taxes due to their effect on taxable income while contributing toward retirement. Here’s an example:
- Salary Sacrifice Contributions- usually about 15 percent, which is at times lower than the taxpayer’s marginal tax rate.
Managing Capital Gains
Make timely asset sales-based capital gains offset or contribute proceeds into your super fund so they can cover the capital gains.
Claim All Deductions
You should also keep track of, and claim as deductions, work-related expenses, gifts, donations, or tuition expenses related to your studies, in order to optimize your tax position.
Private Health Insurance
If you hold decent private health insurance, this can exempt you from paying the Medicare Levy surcharge; it can save you up to 1.5% of your taxable income.
What’s Next For Australian Taxpayers?
New tax brackets mean smoother sailing for Australians looking to deal efficiently with their tax obligations. Whether your goal is to save more, invest more into super, or keep on the right side of the law, you should be aware of what’s changed this financial year.
During the financial year, it is always prudent to sit down with a tax professional for tailored strategy advice based on your circumstances.
Simplify Your Taxes With Leading Tax Experts
Take charge of your tax with ease! Leading Tax Experts have expert tax accountants who make sure you maximise the benefits of taxes in 2024-25. Knowing tax brackets, deductions, offsets, we are there at your service. Speak to us now for advice tailored to suit your needs and for worry-free, hassle-free tax solutions!
