For 2025-26, resident individual income tax rates are: $0 to $18,200 tax-free; $18,201 to $45,000 at 16%; $45,001 to $135,000 at 30%; $135,001 to $190,000 at 37%; and income above $190,000 at 45%. The Medicare levy of 2% applies on top for most residents.

What Are the Australian Tax Brackets for 2025–26?

Every year the Australian Taxation Office (ATO) sets the income tax rates that apply to Australian residents. For the 2025–26 financial year (1 July 2025 to 30 June 2026), the tax brackets remain the same as they were in 2024–25, following the significant changes introduced by the Stage 3 tax cuts that took effect from 1 July 2024.

Here are the official resident tax rates for 2025–26, as published by the ATO:

Taxable Income	Tax on This Income	Effective Rate (approx.)
$0 – $18,200	Nil	0%
$18,201 – $45,000	16c for each $1 over $18,200	Up to 10.2%
$45,001 – $135,000	$4,288 plus 30c for each $1 over $45,000	Up to 25.5%
$135,001 – $190,000	$31,288 plus 37c for each $1 over $135,000	Up to 31.5%
$190,001 and over	$51,638 plus 45c for each $1 over $190,000	Up to 45%+

Note: These rates do not include the Medicare levy of 2%. Source: Australian Taxation Office.

What Changed for 2025–26?

The short answer: the rates themselves did not change. The big shift happened in 2024–25, when the Stage 3 tax cuts came into effect. Those changes were significant and made Australians meaningfully better off compared to the brackets that had applied since 2022–23.

Here is what changed from 2023–24 to 2024–25 (and carries through to 2025–26):

• The bottom marginal rate dropped from 19% to 16% on income between $18,201 and $45,000
• The 32.5% rate was reduced to 30%
• The 30% bracket was extended from $120,000 up to $135,000
• The top 45% threshold moved from $180,000 up to $190,000

If you have not reviewed your tax position since these changes, there is a good chance you are paying less tax than you were two years ago — which is a good reason to compare your most recent return against prior years.

What Is the Tax-Free Threshold?

The tax-free threshold is $18,200. This means that if your total taxable income for the year is $18,200 or less, you pay no income tax at all.

To claim the tax-free threshold, you must be an Australian resident for tax purposes. If you have more than one employer, you should only claim it with your primary employer — otherwise you may end up with a tax debt at the end of the year.

For business owners operating through a company or trust, the tax-free threshold is a powerful planning tool. Trust distributions to beneficiaries who have not used their threshold — including adult children studying or working part-time — can reduce the overall family tax burden significantly. We will come back to this below.

The Low Income Tax Offset (LITO)

On top of the tax-free threshold, lower-income earners are entitled to the Low Income Tax Offset (LITO), which further reduces the amount of tax payable. For 2025–26:

• The maximum LITO is $700
• This full offset applies to taxable incomes up to $37,500
• It reduces by 5 cents for every dollar earned between $37,500 and $45,000
• It then reduces by 1.5 cents for every dollar earned between $45,001 and $66,667
• At $66,667 and above, the LITO is nil

In practical terms, the combination of the tax-free threshold and LITO means that an Australian resident pays no net income tax on the first $21,884 of earnings (because the LITO offsets the small amount of tax otherwise payable on income between $18,201 and the point at which the offset reduces it to zero).

The LITO is automatically applied when you lodge your tax return — you do not need to do anything special to claim it.

Medicare Levy: The 2% You Cannot Forget

The income tax rates in the ATO table above do not include the Medicare levy. The Medicare levy is an additional 2% of your taxable income, and it applies to most Australian residents.

So if your marginal tax rate is 30%, your total rate on that slice of income is actually 32% once Medicare is factored in. At 45%, it is 47%.

There are some exemptions and reductions for very low income earners, but for most business owners and salary earners, the full 2% applies.

Medicare Levy Surcharge (MLS)

If your income is above $93,000 and you do not hold appropriate private hospital cover, you may also be liable for the Medicare Levy Surcharge. This is an additional 1% to 1.5% on top of the standard 2% levy, depending on your income level. For high-income earners without private health insurance, the surcharge often costs more than the private hospital cover itself — worth checking with your adviser.

For current Medicare levy thresholds and exemptions, refer to the ATO’s Medicare levy page.

How to Calculate Your Tax: Worked Examples

The marginal tax system can be confusing. Here are three worked examples to show how tax is actually calculated for different income levels in 2025–26 (before LITO, and excluding Medicare levy). For a quick estimate, try our Australian tax calculators.

Example 1: $75,000 Taxable Income

Tax on $0 – $18,200	$0
Tax on $18,201 – $45,000 (16% on $26,800)	$4,288
Tax on $45,001 – $75,000 (30% on $30,000)	$9,000
Total tax before offsets	$13,288
Less: LITO (nil at this income level)	$0
Income tax payable	$13,288
Medicare levy (2% of $75,000)	$1,500
Total tax and Medicare levy	$14,788
Effective total rate	19.7%

Example 2: $150,000 Taxable Income

Tax on $0 – $18,200	$0
Tax on $18,201 – $45,000 (16% on $26,800)	$4,288
Tax on $45,001 – $135,000 (30% on $90,000)	$27,000
Tax on $135,001 – $150,000 (37% on $15,000)	$5,550
Total income tax payable	$36,838
Medicare levy (2% of $150,000)	$3,000
Total tax and Medicare levy	$39,838
Effective total rate	26.6%

Example 3: $250,000 Taxable Income

Tax on $0 – $18,200	$0
Tax on $18,201 – $45,000 (16% on $26,800)	$4,288
Tax on $45,001 – $135,000 (30% on $90,000)	$27,000
Tax on $135,001 – $190,000 (37% on $55,000)	$20,350
Tax on $190,001 – $250,000 (45% on $60,000)	$27,000
Total income tax payable	$78,638
Medicare levy (2% of $250,000)	$5,000
Total tax and Medicare levy	$83,638
Effective total rate	33.5%

These examples highlight an important distinction between marginal rate and effective rate. At $250,000, you are in the 45% marginal bracket — but your effective rate (the percentage of total income going to tax) is only 33.5%. Not all of your income is taxed at 45%. Only the slice above $190,000 is.

Company Tax Rate vs Individual Tax Rates

For business owners, understanding how the company tax rate compares to personal tax rates is fundamental to good tax planning.

For the 2025–26 year, the company tax rate for base rate entities (companies with an aggregated turnover of less than $50 million that derive no more than 80% of their income from passive sources) is 25%. The standard company tax rate for larger businesses is 30%.

Compare this to the personal top marginal rate of 45% plus 2% Medicare levy (47% combined). If you are a business owner taking profits out as personal income, you could be paying almost double the tax rate compared to leaving profits in a company.

This is where choosing the right business structure becomes important. Operating through a company, a family trust, or a combination of both can allow business owners to:

• Pay company tax at 25% as a base rate entity, rather than personal tax at up to 47%
• Retain profits in a lower-taxed entity to fund business growth
• Distribute income to family members in lower tax brackets via a trust
• Access the 50% CGT discount when selling business assets held in a trust for more than 12 months

None of this is tax avoidance. It is legitimate tax planning using structures the Australian tax system explicitly provides for. The key is getting the structure right before you need it — not after.

How Smart Business Owners Use the Tax Brackets

Understanding the brackets is one thing. Using them proactively is another. Here are four strategies business owners commonly use to reduce their effective tax rate by working with the bracket structure.

1. Distributing Income Through a Family Trust

A family trust allows a trustee to distribute income to any eligible beneficiary each year. If your spouse earns $40,000 from part-time work and your trust makes $200,000 in profit, distributing $90,000 to your spouse (up to the top of the 30% bracket before their total income hits $135,000) means that $90,000 is taxed at lower rates than if it all flowed to you at 45%.

Adult children who are studying or working in lower-paid roles can also be beneficiaries. Every dollar distributed to someone in a lower bracket reduces the family’s overall tax bill. The ATO has rules around distributions to minors (the Minors’ tax or “kiddie tax”), but for adult family members, this is a straightforward and well-established strategy.

2. Making Concessional Super Contributions

Concessional (before-tax) super contributions are taxed at 15% inside the super fund rather than at your marginal rate. For someone in the 37% bracket (plus 2% Medicare = 39%), making a $27,500 concessional contribution saves them approximately $6,600 in personal income tax — since the difference between 39% and 15% is 24%, and 24% of $27,500 is $6,600.

The concessional contribution cap for 2025–26 is $30,000. This includes contributions made by your employer (the super guarantee) and any additional contributions you make personally. Business owners who have not maxed their concessional cap in prior years may also be able to use the carry-forward rules to contribute more than $30,000 in a single year.

3. Retaining Profits in a Company at 25%

If your business generates more profit than you personally need to live on, consider leaving the excess in the company rather than paying it out as a dividend or salary. At 25% for a base rate entity, the company tax rate is significantly lower than the top personal rate of 47% (including Medicare). The retained profits can fund future growth, capital expenditure, or be invested — and the tax is deferred until profits are eventually extracted.

This strategy requires careful planning to avoid Division 7A issues (the rules around loans and payments from private companies to shareholders), but it is one of the most powerful deferral strategies available to small business owners.

4. Using a Bucket Company to Cap Trust Distributions

A bucket company is a company set up as a beneficiary of a family trust. When the trust distributes income to the bucket company, that income is taxed at the company rate of 25% where the company is a base rate entity, rather than the individual’s marginal rate. A distribution out of a trading trust keeps its trading character, so the bucket company normally qualifies; if the trust’s income is mainly rent, dividends or capital gains, the rate is 30% instead. The profits sit in the bucket company, and the business owner can choose when (and how) to ultimately extract those funds — through franked dividends, which come with tax credits, or through salary.

For high-income business owners who have already used all available family members’ lower brackets, the bucket company is typically the next step in the tax planning conversation.

What About the 2026–27 Tax Rates?

As of the time of writing, the ATO has published confirmed rates up to 2025–26. For the 2026–27 financial year (the year that started 1 July 2026), official rates will be confirmed and published by the ATO once legislated. Any changes arising from the 2026 Federal Budget will flow through to the rates applicable from 1 July 2026.

If any changes are announced that affect your tax position, your Pinnacle adviser will be in contact proactively. You should not need to wait until your return is lodged to find out whether your tax bill has changed.

Superannuation Guarantee Rate for 2025–26

While not an income tax rate, the super guarantee rate is worth noting here because it directly affects the cost of employing staff and paying yourself as an employer.

For 2025–26, the superannuation guarantee rate is 12% of ordinary time earnings. This is the final step in the legislated super guarantee increases and will remain at 12% from this point forward (unless legislated otherwise).

For business owners who pay their own super as directors or self-employed individuals, ensuring contributions are made before 30 June is essential for claiming the deduction in the current year.

Frequently Asked Questions

What is the tax-free threshold for 2025-26?

The tax-free threshold for 2025–26 is $18,200. Australian residents earning $18,200 or less in total taxable income pay no income tax. Combined with the Low Income Tax Offset (LITO), the effective tax-free amount is slightly higher.

What is the Medicare levy?

The Medicare levy is an additional 2% of taxable income charged on top of the standard income tax rates. It funds Australia’s public health system. Low-income earners may be exempt or receive a reduction. Higher-income earners without private hospital cover may also be subject to the Medicare Levy Surcharge of up to 1.5%.

What is the top marginal tax rate in Australia?

The top marginal income tax rate for 2025–26 is 45%, applying to taxable income above $190,000. Including the 2% Medicare levy, the effective top rate is 47%.

What is the company tax rate for small businesses?

For the 2025–26 year, the company tax rate for base rate entities (turnover under $50 million with passive income under 80%) is 25%. The standard company rate for other companies is 30%.

Do tax rates apply to total income or taxable income?

Tax rates apply to your taxable income, which is your total income minus allowable deductions. This is why deductions matter — every dollar of legitimate deduction reduces the income on which you are taxed, saving you your marginal rate on that dollar.

Are these rates different for non-residents?

Yes. Non-residents for tax purposes face different (generally higher) rates and are not entitled to the tax-free threshold. If you are unsure of your residency status, this is something to clarify with your accountant, as it can significantly affect your tax position. The ATO publishes non-resident tax rates separately.

Get Ahead of Your Tax — Don’t Wait Until June

Most Australians only think about tax rates in July when they are lodging their return for the previous year. By then, it is too late to do anything about it. The strategies that actually reduce your tax bill — trust distributions, super contributions, company structuring, timing of income and expenses — only work when they are implemented before 30 June.

At Pinnacle Accounting & Advisory, we work with business owners throughout the year so that tax planning decisions are made in real time, not retrospectively. If you want to understand what your current structure means for your 2025–26 tax position — or whether there is a better structure available to you — we would be glad to talk through it.

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Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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