Did you know tax changes in 2025 could save you hundreds on your tax return in Melbourne?
With the 2024-25 financial year well underway, significant changes to Australian taxation brackets are impacting millions of taxpayers across the country.
Recent ATO data reveals that over 60% of Australian taxpayers will benefit from the newly implemented tax cuts, yet many remain unaware of how these changes specifically affect their financial position.
What Are Australian Taxation Brackets?
Tax brackets set the rates applied to your taxable income each financial year, from 1 July to 30 June.
Australia uses a progressive tax system, meaning higher income faces higher rates, but only on the portion above each threshold.
Tax Accountants help you understand these brackets, ensuring your tax returns align with Australian Taxation Office (ATO) rules.
Tax Brackets For 2024-25
What rates apply in 2025? For 2024-25, the Australian taxation brackets for residents, effective from 1 July 2024, reflect stage 3 tax cuts.
The tax-free threshold remains $18,200, with no tax on income up to this amount. Above that, rates range from 16% to 45%, depending on income.
The table below details the 2024-25 tax brackets:
| Income Thresholds | Tax Rate | Tax Payable |
|---|---|---|
| $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 |
What's New In 2025?
The 2025 financial year (running from 1 July 2024 to 30 June 2025) brings significant changes to income tax rates for Australian residents.
Following a series of tax cuts passed by Parliament in February 2024, the following updates apply from 1 July 2024:
- The bottom tax rate drops from 19% to 16%.
- The 32.5% tax rate falls to 30%.
- The income threshold for the 37% tax rate rises from $120,000 to $135,000.
- The threshold for the 45% top tax rate increases from $180,000 to $190,000.
These changes aim to ease the tax burden across a wider range of incomes, giving Australians a little more breathing room in their budgets.
Additionally, from 1 July 2026, the 16% rate for incomes between $18,201 and $45,000 will drop to 15%, and then to 14% from 1 July 2027.
For anyone earning over $45,000, this translates into a saving of $268 in 2026–27, and $536 from 2027–28, compared to the current rates.
The Government also confirmed an increase in the Medicare levy of low-income thresholds by 4.7% from 1 July 2024, helping low-income earners pay less towards Medicare.
Future Tax Cuts Announced
In addition to the current changes, the government has announced further reductions to income tax rates scheduled for the coming years:
- From 1 July 2026: The 16% tax rate will be reduced to 15%
- From 1 July 2027: This tax rate will be further reduced to 14%
For workers earning more than $45,000, these future changes will provide tax cuts of approximately $268 in the 2026-27 financial year and $536 per year from 2027-28, compared to 2024-25 tax rates.
Understanding How Tax Is Calculated
Many taxpayers misunderstand how the progressive tax system works.
Rather than your entire income being taxed at the highest rate your income reaches, only the portion of your income that exceeds each threshold is taxed at the higher rate.
The process for calculating your tax payable follows this sequence:
- Calculate your assessable income (all sources of income)
- Subtract allowable deductions to determine your taxable income
- Apply the relevant tax rates to different portions of your taxable income
- Subtract any applicable tax offsets
- Add the Medicare levy (usually 2% of taxable income)
- Subtract any tax credits or refundable offsets
The resulting figure is either the amount owing to the ATO or your tax refund. Many taxpayers choose to lodge tax returns online to simplify this calculation process.
Medicare Levy Considerations
The Medicare levy continues to be set at 2% of taxable income for most taxpayers.
However, the government has announced a 4.7% increase to the Medicare levy low-income thresholds from 1 July 2024.
For the 2023-24 financial year:
- Singles with taxable income below $26,000 were exempt from the Medicare levy
- This amount will increase for the 2024-25 year in line with the announced 4.7% adjustment
Tax-Free Threshold
The tax-free threshold remains unchanged at $18,200, meaning Australian residents can earn up to this amount each financial year without paying income tax.
This is a fundamental feature of Australia’s progressive tax system and particularly benefits part-time workers and those with lower incomes.
Tax Offsets For Low-Income Earners
The Low Income Tax Offset (LITO) continues to provide additional tax relief for lower-income earners. For the 2024-25 financial year:
- Maximum LITO amount: $700 (for taxable incomes below $37,500)
- LITO gradually reduces for incomes between $37,500 and $66,667
- No LITO is available for taxable incomes above $66,667
Many tax accountants in Melbourne professionals advise that the combination of the tax-free threshold and LITO effectively allows taxpayers to earn up to $21,884 before paying any income tax.
Save More With Leading Tax Experts
Confused about the 2025 Australian taxation brackets for your tax return in Melbourne? Leading Tax Experts, and top accountants in Australia, make it simple.
Our Tax Accountant Services offer expert advice to maximise your refund and ensure compliance. Call 1300 583 829 or email info@ltetax.com for your Business Tax Returns today!
