Australian Tax Brackets 2024-25: What You Need to Know
Sorting out how much tax you’ll pay in Australia can feel complex, especially with changes to the Australian tax brackets and income tax rates for the 2024-25 financial year. With new tax cuts and updated thresholds, it’s important to know how these updates affect your taxable income, what tax you’ll pay, and how the Medicare levy and Medicare levy surcharge might apply. This guide explains the main changes, what they mean for your tax return, and how much tax you’ll actually pay from 1 July 2024.
Understanding the New Tax Brackets for 2024-25
The Australian Government has changed the individual income tax rates and thresholds from 1 July 2024. These changes affect all Australian residents and are designed to provide cost-of-living relief by reducing the tax payable for most taxpayers. The Australian Taxation Office (ATO) updates these rates each financial year, so it’s important to check the ATO website for the most current information.
From 1 July 2024, the 19 percent tax rate has been reduced to 16 percent for part of your taxable income, and the 32.5 percent rate is now 30 percent. The threshold for the 37 percent rate has increased to $135,000, and the 45 percent rate now starts at $190,000. These changes apply to your assessable income, which includes your salary, wages, interest, dividends, capital gains, and other payments you receive as an employee or from investments.
Tax Rates for Australian Residents
For the 2024-25 financial year, the Australian income tax brackets for residents are as follows:
If your taxable income is up to $18,200, you won’t pay any income tax. For income between $18,201 and $45,000, the tax rate is 16 percent on the amount over $18,200. If your income falls between $45,001 and $135,000, you’ll pay $4,288 plus 30 percent of the amount over $45,000. For those earning between $135,001 and $190,000, the tax payable is $31,288 plus 37 percent of the amount over $135,000. For taxable income above $190,000, the tax is $51,638 plus 45 percent of the amount over $190,000. These tax rates do not include the Medicare levy, which is generally subject to additional rules.
How the Tax Cuts Will Affect You
The tax cuts from 1 July 2024 mean that every Australian taxpayer will receive a reduction in the amount of tax they pay. For example, someone with a taxable income of $73,000 will see a tax cut of around $1,504 for the year. The exact amount you save depends on your taxable income and which tax bracket you fall into. These tax cuts are designed to provide relief for low income earners and middle-income taxpayers, as well as those on higher incomes, by lowering the individual income tax rates across the board.
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Medicare Levy and Medicare Levy Surcharge
In addition to income tax, most Australian residents are required to pay the Medicare levy. The Medicare levy is 2 percent of your taxable income and helps fund Australia’s public health system. The amount you pay depends on your taxable income and whether you qualify for any reductions or exemptions.
Medicare Levy Thresholds for 2024-25
For the 2024-25 financial year, you may not have to pay the Medicare levy if your taxable income is below certain thresholds. For singles, if your taxable income is $27,222 or less, you won’t pay the Medicare levy. If your income is between $27,222 and $34,027, you’ll pay a reduced amount. For families, the threshold is $45,907, with an increase for each dependent child. If you’re a senior or pensioner, higher thresholds apply. The Medicare levy is assessed when you lodge your tax return with the ATO.
Medicare Levy Surcharge
The Medicare levy surcharge is an extra tax that applies to Australian taxpayers with higher incomes who do not have private hospital cover. For the 2024-25 financial year, the surcharge applies to singles with a taxable income over $97,000 and families with a combined income over $194,000. The surcharge ranges from 1 percent to 1.5 percent, depending on your income level. This surcharge is in addition to the standard Medicare levy and is designed to encourage those who can afford it to take out private health insurance. The exact amount you pay depends on your taxable income and whether you have appropriate private hospital cover.
Tax Offsets and Reductions You Should Know About
Tax offsets reduce the amount of tax you pay, and some are especially helpful for low income earners. The Low Income Tax Offset (LITO) is available for those with a taxable income up to $66,667. The maximum offset is $700 for incomes up to $37,500, and it reduces as your income increases. Offsets like LITO can only reduce your tax to zero and are not refundable.
In addition to LITO, you may be eligible for a reduction in your Medicare levy if your income is below the relevant threshold. These offsets and reductions are applied when you complete your tax return and are assessed by the Australian Taxation Office.
Special Tax Rates for Different Taxpayers
Not all taxpayers are taxed the same way. The income tax rates and tax brackets described above apply to Australian residents for tax purposes. If you are a non-resident or a temporary resident, different tax rates and rules apply to your assessable income from Australian sources and foreign income.
Foreign Resident Tax Rates
Foreign residents do not receive the tax-free threshold. For the 2024-25 financial year, foreign residents pay 30 percent on the first $135,000 of taxable income, 37 percent on income between $135,001 and $190,000, and 45 percent on income above $190,000. Foreign residents are not generally subject to the Medicare levy, but they must pay tax on income earned in Australia.
Working Holiday Maker Tax Rates
If you are a temporary resident on a working holiday visa, special rates apply. You will pay 15 percent on the first $45,000 of your taxable income, 30 percent on income between $45,001 and $135,000, 37 percent on income between $135,001 and $190,000, and 45 percent on income above $190,000. These rates apply to income from employment and other Australian sources.
What Counts as Taxable Income?
Your taxable income is your assessable income minus allowable deductions. Assessable income includes salary, wages, interest, dividends, capital gains, and other payments from employment or investments. Allowable deductions might include work-related expenses, interest on investment loans, or superannuation contributions. The ATO website provides details on what counts as assessable income and what deductions you can claim.
If you receive income from foreign sources, you may still need to include this in your Australian tax return, depending on your residency status for tax purposes. Capital gains from selling investments or property are also included in your taxable income and may affect how much tax you pay.
How to Work Out Your Tax Payable
The amount of tax you pay depends on your taxable income, which tax bracket you fall into, and whether you are eligible for any tax offsets or deductions. Your employer will generally withhold tax from your salary throughout the year, and the final amount you owe or are refunded is determined when you lodge your tax return. The ATO will calculate your tax payable, including any Medicare levy or surcharge, and take into account any tax offsets or deductions you claim.
If you have investments, earn foreign income, or receive other payments, these may affect your assessable income and the tax you pay. Superannuation contributions, interest, dividends, and capital gains are all considered when working out your total tax liability.
The Importance of Professional Advice
While this guide covers the main points about the 2024-25 Australian tax brackets, income tax rates, and Medicare levy, everyone’s situation is different. Whether you’re an employee, investor, or business owner, your tax return may involve various types of income, deductions, and offsets. Seeking professional advice from a registered tax agent or accountant can help you ensure your tax return is accurate and that you’re making the most of any available deductions and offsets.
Conclusion
The changes to Australian tax brackets and income tax rates for the 2024-25 financial year will affect how much tax you pay, the tax offsets you can claim, and your overall tax payable. Understanding your taxable income, the Medicare levy, and the Medicare levy surcharge is key to managing your finances and planning for the year ahead. If you have questions about your tax return, assessable income, or eligibility for deductions and offsets, consider seeking professional advice to ensure you’re making the most of the current tax system.
How will these tax changes influence your financial plans for the year, and what steps can you take to make sure you’re paying the right amount of tax?