How Australian income tax works
Australian income tax is the money the federal government collects from what people earn, so it can pay for services such as Medicare, schools, roads, and income support. The Australian Taxation Office (ATO) collects it. If you live and work in Australia, you almost certainly pay it — usually a little from every pay, without ever seeing the money leave your account.
The system in one paragraph
Your employer withholds tax from each pay (PAYG withholding). After the financial year ends on 30 June, you lodge a tax return. The ATO works out the tax you actually owed for the year, compares it with what was withheld, and either refunds the difference or asks you to pay it. That is the whole system — everything else on this site is detail.
The financial year
Australia's tax year — the income year — runs from 1 July to 30 June. The 2026–27 income year runs from 1 July 2026 to 30 June 2027, and its return is lodged from 1 July 2027. Rates and thresholds are set per income year, so always check which year a figure belongs to before you use it.
Who pays income tax
If you are an Australian resident for tax purposes, you pay tax on your worldwide income, and you get the $18,200 tax-free threshold. Residency for tax purposes is decided on your facts and circumstances under the ATO's tests — it is not the same as holding a visa or being a citizen. If you are a foreign resident for the full year, you pay tax from the first dollar (no tax-free threshold) at 30% on the first $135,000, then 37% to $190,000 and 45% above that, and you do not pay the Medicare levy. Working holiday makers have their own rates.
What counts as income
Almost everything you receive for work or from investments counts: salary and wages, tips and bonuses, business income, bank interest, dividends, rent, and capital gains when you sell an asset for more than it cost. Some government payments are taxable too. Gifts, inheritances, and money you borrow are generally not income. If you are unsure whether something counts, the ATO's income pages list each type — and your pre-filled myTax return will already show much of it.
The basic maths
Your tax bill follows five steps. First, add up your assessable income. Second, subtract your deductions to get your taxable income. Third, apply the tax brackets to that figure. Fourth, subtract any tax offsets and add the Medicare levy. Fifth, subtract the tax already withheld from your pay. What is left is your refund or your bill.
Example: on $80,000 of taxable income in 2026–27, the tax is $4,020 plus 30% of the $35,000 above $45,000 — $4,020 + $10,500 = $14,520. The 2% Medicare levy adds $1,600, giving $16,120 before offsets. If $16,000 was withheld from your pay during the year, you would owe $120. If $17,000 was withheld, you would get an $880 refund.
Your Tax File Number
Your Tax File Number (TFN) is your unique identifier for all dealings with the ATO. Give it to your employer and your bank. If you do not give your employer your TFN, they must withhold tax at the highest marginal rate. Keep your TFN private — it is one of the keys to your identity.
Sources: Australian Taxation Office (ato.gov.au) — individual income tax rates; income you must declare; PAYG withholding; Moneysmart (moneysmart.gov.au) — income tax.