Tax brackets in Australia can feel like a puzzle, especially when you're trying to work out whether that pay rise will push you into a higher bracket or how much of your income the ATO will take.
The good news? Understanding tax brackets is simpler than you might think. And once you know how they work, you can start making smarter decisions about your money, including ways to legally reduce the tax you pay.
Let's break down the Australian tax bracket system for 2025-26, clear up some common myths, and show you how salary packaging through a novated lease can help you keep more of what you earn.
Tax Bracket Australia 2025-26: The New Numbers
For the 2025-26 financial year, the ATO states Australian residents pay income tax according to these brackets:
$0 to $18,200: Nil (this is the tax-free threshold)
$18,201 to $45,000: 16 cents for each dollar over $18,200
$45,001 to $135,000: $4,288 plus 30 cents for each dollar over $45,000
$135,001 to $190,000: $31,288 plus 37 cents for each dollar over $135,000
$190,001 and above: $51,638 plus 45 cents for each dollar over $190,000
These rates are the result of the Stage 3 tax cuts that took effect on 1 July 2024, known by many as the “cost of living tax cuts”. The aim of these cuts are to provide more benefits to a wider range of income earners. They're identical to the 2024-25 rates and are expected to remain in place until at least 2029-30, according to the ATO.
The first two stages (between 2018 and 2021) introduced the temporary Low and Middle Income Tax Offset as well as increasing the lower income tax thresholds to further benefit low-to-middle income workers.
Stage 3 involved reduced tax rates for low income brackets, while also keeping the 37% bracket and increasing the threshold for high income earners.
Here's the thing people often get wrong: moving into a higher tax bracket doesn't mean your entire income gets taxed at that higher rate. Australia uses a progressive tax system, which means each slice of your income is taxed at the rate for that bracket only.
Taxable income vs taxable income tax: understanding the difference
Your taxable income is what's left after you subtract allowable deductions from your total assessable income. That includes your salary, interest, rental income, capital gains, and any other money you've earned during the financial year.
Taxable income tax is the actual amount of tax you owe on that income, calculated by applying the tax rates above to each portion of your earnings.
For example, if you earn $75,000 in the 2025-26 financial year, you don't pay 30% on the whole amount. Instead, you pay nothing on the first $18,200, 16 cents per dollar on the next $26,800, and 30 cents per dollar on the remaining $30,000. Your total income tax comes to $13,288 before the Medicare levy.
Medicare levy and Medicare levy surcharge: what gets added on?
On top of your income tax, most Australian residents also pay a Medicare levy (a specific tax-related charge with a specific public purpose) of 2% of their taxable income. This helps fund Australia's public health system.
If your taxable income is below a certain threshold for singles or for families, you may qualify for a reduction or exemption. Foreign residents and some temporary residents don't pay the Medicare levy at all.
There's also the Medicare Levy Surcharge (MLS), which applies if you earn above certain thresholds and don't have private hospital cover. For 2025-26, the MLS kicks in at:
$101,000 for singles
$202,000 for families (plus $1,500 for each child after the first)
The surcharge ranges from 1% to 1.5%, depending on your income. It's worth checking whether private health insurance might save you money if you're close to these limits.
Tax-free threshold: why your first $18,200 is still tax-free
Every Australian resident is entitled to earn up to $18,200 without paying any income tax. This is called the tax-free threshold, and it's been in place for years.
One important thing to remember: if you work multiple jobs, you should only claim the tax-free threshold from one employer. If you claim it from more than one, you might end up with a tax bill at the end of the year because not enough tax was withheld from your pay.
How the Progressive Tax System Works for Australian Residents
Australia's progressive tax system is designed so that people who earn more pay a higher proportion of tax, but it's fairer than it sounds.
Let's say you earn $50,000. You'll pay:
$0 on the first $18,200
$4,288 on the income between $18,201 and $45,000
$1,500 on the remaining $5,000 at 30 cents per dollar
Your total tax payable is $5,788, plus the 2% Medicare levy ($1,000), bringing your final tax bill to $6,788. That's an effective tax rate of about 13.6%, even though your marginal rate (the rate on your last dollar earned) is 30%.
This structure means crossing into a new tax bracket doesn't suddenly make you worse off. You'll always take home more if you earn more, it's just that the extra income is taxed at a slightly higher rate.
What about foreign residents and temporary residents?
Foreign residents don't get the tax-free threshold and are taxed from the first dollar they earn in Australia. For 2025-26, the rates are:
$0 to $135,000: 30 cents per dollar
$135,001 to $190,000: $40,500 plus 37 cents per dollar over $135,000
$190,001 and above: $60,850 plus 45 cents per dollar over $190,000
Foreign residents also don't pay the Medicare levy, which can offset some of the higher tax on lower incomes.
Temporary residents may be treated as foreign residents for tax purposes depending on their visa subclass and circumstances. If you're unsure, it's worth checking with a registered tax agent or the ATO.
Multiple jobs, side hustles and rental income: will you pay more tax?
If you have income from multiple sources, it all gets added together to work out your total taxable income. That includes:
Salary from multiple jobs
Business income from freelancing or a side hustle
Rental income from an investment property
Interest and dividends
The more income you have, the higher your marginal tax rate. But remember, only the income above each threshold is taxed at the higher rate.
One trap to watch out for: if you're earning income from multiple employers and they're all withholding tax as if you're only working for them, you might not have enough tax withheld overall. This can lead to a tax bill when you lodge your tax return.
Tax Planning Tips for 2025-26 (and Where Novated Leasing Fits In)
Now that you understand how tax brackets work, you can start thinking about tax planning. The goal isn't to dodge tax, it's to structure your finances in a way that's legal, smart, and keeps more money in your pocket.
One of the most effective ways to reduce your taxable income is through salary packaging. This is where you use part of your pre-tax salary to pay for certain expenses, which lowers the amount of income you're taxed on.
Easi has been helping Australians do exactly this since 1992. With more than three decades of experience and over 5,000 leases under management, our in-house tax and compliance team knows the ins and outs of the ATO's Fringe Benefits Tax rules. We work with employees and employers across every state and territory to make salary packaging as straightforward as possible.
A novated lease is one of the most popular forms of salary packaging. It lets you pay for a car and its running costs using your pre-tax income, which reduces your taxable income and can save you thousands of dollars a year.
Here's how it works. Let's say you earn $110,000 and you take out a novated lease that costs $12,000 per year (covering the car, insurance, rego, fuel, and servicing). That $12,000 comes out of your salary before tax is calculated, so your taxable income drops to $98,000.
Under the 2025-26 tax rates, that shift could save you around $3,600 in income tax, plus you'll save on GST for the car and its running costs. If you're leasing an eligible electric vehicle, you may also benefit from the FBT exemption under the Electric Vehicle Discount Act 2022, which can boost your savings even further.
You can see how much you could save using our online calculator, or give us a call on 1300 266 828 to talk through your options.
Save on your final tax bill with an Easi novated lease
Tax time doesn't have to be stressful. When you understand how the tax brackets work and take advantage of legitimate salary packaging options, you can reduce your tax payable and keep more of your take-home pay.
A novated lease isn't just about getting a car. It's about making your money work harder for you. Whether you're looking at a family SUV, a fuel-efficient sedan, or an electric vehicle, salary packaging through Easi can help you drive away with serious savings.
If you're sitting on the cusp of a higher tax bracket or just want to make the most of the Stage 3 tax cuts, now's a great time to explore your options. We'll handle the paperwork, liaise with your employer, and make the whole process easy - get in touch with us today to learn more.
Disclaimer: This information is general only. Tax rules can be complex and your personal circumstances matter. Speak with a registered tax agent about your specific situation, and visit the ATO's working-from-home hub for the latest guidance.
