Australian tax basics
Australia uses a self-assessment system. You are responsible for declaring all income and applicable deductions.
Financial year: July 1 to June 30 (NOT calendar year).
Tax brackets 2025-26 (Stage 3 cuts)
- 0%: $0 - $18,200 (tax-free threshold)
- 16%: $18,201 - $45,000
- 30%: $45,001 - $135,000
- 37%: $135,001 - $190,000
- 45%: $190,001+
Plus 2% Medicare Levy (most workers, exempt under $24K).
Medicare Levy Surcharge 1-1.5% if no private health AND income above $97K single/$194K family.
For a $90K earner
- Tax-free first $18,200: $0 tax
- 16% on $26,800: $4,288
- 30% on $45,000: $13,500
- Total income tax: $17,788
- Medicare 2%: $1,800
- Total: $19,588
PAYG withholding: employer deducts tax each pay period. ATO reconciles at tax return.
| Income to declare | Deductions | Who must lodge | Who can lodge "non-lodgment advice" |
|---|---|---|---|
| Salary + wages (from employers) | Work-related expenses | Anyone who earned over $18,200 (tax-free threshold) | Income under tax-free threshold + no tax withheld |
| Interest (from banks) | Self-education (related to current employment) | Anyone with non-resident income | ATO recommends always lodging if income approached threshold |
| Dividends + franking credits (from companies) | Cost of managing tax affairs (accountant fees deductible next year) | Anyone with capital gains over $1,000 | |
| Capital gains from selling stocks, crypto, property | Donations to deductible gift recipients ($2+ amounts) | Anyone with tax withheld (to get refund if applicable) | |
| Rental income (less rental expenses) | Personal super contributions (must be deductible type) | Centrelink recipients | |
| Foreign income (if Australian tax resident) | Anyone running a business | ||
| Business income (Schedule of trading income for sole traders) | |||
| Centrelink payments (some taxable) |
Common deductions explained
| Work-from-home expenses | Vehicle expenses | Professional development | Clothing + laundry | Donations | Union fees + professional subscriptions |
|---|---|---|---|---|---|
| Fixed rate method: 67 cents/hour for hours worked from home (revised 2022/4D) | Cents-per-km method: up to 5,000 work-related km, $0.85/km in 2025-26 (was $0.78) | Course fees + textbooks + travel (related to current employment) | Compulsory uniform (employer-mandated): $1.00/wash + cost of garment | $2+ to DGR (Deductible Gift Recipient) organizations | Fully deductible if work-related |
| Covers: phone, internet, electricity, decline in value (small items) | Max deduction: 5,000 km * $0.85 = $4,250 | Must be RELATED to current employment - not for new career direction | Sun-protective work outside | Receipts required for amounts over $10 | Common items: medical association, teachers union, engineers institute |
| No need to track individual expenses | Logbook method: track actual km + business percentage | Self-education leading to higher pay in same field: deductible | Industry-specific safety boots | Charitable trusts and Public Ancillary Funds eligible | |
| Best for occasional home workers | Better for high-mileage workers (over 5,000 work km) | Career change (e.g. accountant becoming nurse): NOT deductible | Conventional clothing: NOT deductible (even if expensive) | Political donations: NOT deductible | |
| Actual cost method: track each expense + work-use percentage | |||||
| Phone: 20-50% work use typical | |||||
| Internet: 30-50% | |||||
| Electricity: small percentage based on work-from-home hours | |||||
| Heating/cooling: same method | |||||
| More effort but potentially higher deduction for full-time work-from-home |
Deductions over $300 require receipts (or other proof). Below $300: ATO accepts reasonable estimates.
Section 8-1 ITAA 1997: general deduction provision. Expense must be:
1. Incurred in earning your assessable income
2. Not capital, private, or domestic in nature
| Income range | Marginal rate | Medicare Levy |
|---|---|---|
| $0 - $18,200 | 0% | 0-2% |
| $18,201 - $45,000 | 16% | 2% |
| $45,001 - $135,000 | 30% | 2% |
| $135,001 - $190,000 | 37% | 2% |
| $190,001+ | 45% | 2% + 1-1.5% MLS |
Capital gains tax + investment income
| CGT triggers | 50% CGT discount |
|---|---|
| Selling Australian shares + ETFs | Assets held over 12 months by individual (or super fund): 50% of gain is taxable |
| Selling foreign stocks | Discount allowance for individuals + trusts |
| Selling crypto-currency | Companies: NO discount (full 100% inclusion at corporate rate) |
| Selling investment property | |
| Gifting (deemed at market value) | |
| Inheritance: original cost base inherited (not stepped up) |
Worked example - share sale:
Liam bought $20K of CBA shares in 2022. Sold for $35K in 2025.
Held 3 years: qualifies for 50% discount.
Gain: $15,000
Discount: $7,500 (50% of $15K)
Taxable gain: $7,500 (added to other income for marginal rate calculation)
Worked example - crypto:
Maya bought 1 ETH for $5K in October 2024. Sold for $8K in April 2026.
Held 18 months: qualifies for 50% discount.
Gain: $3,000
Discount: $1,500
Taxable gain: $1,500
Note: each trade between cryptos is a CGT event (e.g. BTC to ETH = sell BTC, buy ETH).
| Foreign income credits | Dividend imputation (franking credits) | Rental property |
|---|---|---|
| US dividends in Australian brokerage: 30% withholding usually | Australian companies paid corporate tax 30% (or 25% for SBE) | Rent received less allowable rental expenses |
| W-8BEN reduces to 15% (or 0% if Australia DTAA) | Distribute "franked" dividends (post-tax) | Negative gearing: rental loss offsets other income (reduces total tax) |
| Claim foreign tax credit on Australian return for any tax paid abroad | Shareholder receives dividend + franking credit (representing pre-paid corporate tax) | Capital allowances + depreciation deductions |
| Personal tax: gross-up + add to assessable income, then deduct franking credits | Land tax in NSW + others adds to rental cost | |
| For super fund (15% tax): receive full franking credit, sometimes refunded | ||
| For low-bracket retirees: refundable franking credits |
Foreign property: similar rules; report foreign income + foreign tax paid; claim credit.
Common audit triggers
ATO uses data matching extensively. Triggers for review:
- Cash businesses with low declared income
- Investment property losses without rental income reported
- Work expense claims over $500 without receipts
- Capital gains from crypto not reported (CRA-style matching with exchanges)
- Foreign income not declared (CRS data sharing)
- Mismatch between bank interest reported by bank and your return
- Rental income from Airbnb/Stayz not reported
- Dividends not matching CHESS records
- Vehicle expense over 5,000 km without logbook
- Work-from-home expenses for 50+ hours weekly during in-office return phase
| Documentation requirements | ATO penalty rates | Objection process |
|---|---|---|
| Keep records 5 years (5 years from when assessment becomes final) | Late lodgment: $313 base (FY 2026); rising for each 28-day period late, max $1,565 | Disagree with assessment: lodge objection in writing within 2 years |
| Receipts, invoices, bank statements, contracts | Failure to comply with notice: $313 base, repeating monthly | ATO must respond within 60 days |
| Diary for work-related expenses without receipts (under $300 each) | Falsehoods or recklessness: up to 75% of underpayment | AAT (Administrative Appeals Tribunal) for unresolved |
| Logbook for vehicle expenses (12 weeks every 5 years, plus updated annually) | Deliberate evasion: 75% penalty PLUS interest charges | Federal Court for legal questions |
Dispute resolution: ATO offers Voluntary Disclosure programs for under-reporting that pre-empts audit penalty.
Common tax return mistakes
- Forgetting to lodge by October 31. Late penalty $313/month.
- Trusting pre-fill blindly. Cross-check banks, employers, brokers - mismatches happen.
- Claiming home office without backing methodology. Either 67c/hr fixed OR actual costs with logs - cannot mix.
- Missing super deductible contributions. Form NAT 71121 to your super fund within 30 days of lodging.
- Forgetting tax agent fee deduction. Tax agent fees from prior year tax return are deductible THIS year.
- Not consolidating HECS-HELP info. Some have multiple HELP loans; check all balances.
- Crypto gains under-reported. ATO data shares with major exchanges; every trade is a CGT event.
- Foreign income missed. International workers + investors: declare ALL global income if Australian resident.
- Investment property: claiming personal portion of property expenses. Must be PROPORTIONAL to rental days only.
- Choosing wrong CGT discount method. Indexed cost base (pre-CGT) discontinued for assets acquired post-1999. Use 50% discount for assets held over 12 months by individual.
Run the math for your situation
Use our 🇦🇺 Australia calculator to plug in your own numbers.