The 2025 financial year brings notable changes in income tax thresholds for Australian taxpayers. The federal government has implemented adjustments that will affect most Australian taxpayers, with new thresholds and rates designed to address cost of living pressures.
This guide breaks down exactly how these tax brackets Australia changes will impact your take-home pay and whether you’ll be paying more or less tax this year.
Understanding the New Tax Brackets Australia System
The Australian taxation system operates on a progressive structure, where higher incomes are taxed at higher rates. For the 2025 financial year, the tax brackets Australian residents will follow have undergone notable changes compared to previous years.
What are Tax Brackets?
Tax brackets Australia uses are income ranges that determine the percentage of tax you pay on different portions of your income. The Australian Taxation Office (ATO) applies different tax rates to different segments of your income, not your entire earnings. This progressive system means that as your income increases, only the amount within each higher bracket gets taxed at a higher rate.
Tax Brackets Australia 2025: The New Structure
The 2025 financial year introduces several modifications to the tax brackets Australian residents have been using. Below is a detailed overview of the revised structure:
Personal Income Tax Brackets Australia 2025
| Taxable Income | Tax Rate | Tax Payable |
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16% for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 + 30% for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 + 37% for each $1 over $135,000 |
| $190,001 and over | 45% | $51,638 + 45% for each $1 over $190,000 |
Medicare Levy
In addition to income tax, most Australians pay a 2% Medicare levy on their taxable income. Some low-income earners may receive a reduction or exemption depending on their circumstances.
How the Tax Brackets Australia Changes Affect Different Income Levels
The changes to Australia’s tax brackets can have a significant impact on take-home pay across different income levels. As of the 2024–2025 financial year, the federal government has legislated Stage 3 tax cuts, which simplify the tax system and reduce rates for many earners
Low-income Earners ($18,201 – $45,000)
If you earn less than $18,200 annually, you’ll continue to pay no income tax under the new tax brackets Australia has established. For those earning between $18,201 and $45,000, the tax rate has decreased to 16% for every dollar above the tax-free threshold.
Impact example: A person earning $40,000 will pay approximately $3,488 in income tax under the new tax brackets Australia 2025 structure (before accounting for any offsets or deductions).
Low-income earners may also benefit from the Low Income Tax Offset (LITO), which can reduce your tax liability by up to $700 depending on your income level.
Middle-income Earners ($45,001 – $135,000)
Middle-income Australians constitute a significant portion of taxpayers. Under the new tax brackets Australia has implemented, those in this range will pay 30% on every dollar earned above $45,000.
Impact example: An individual with a taxable income of $85,000 will pay approximately $4,288 + $12,000 = $16,288 in income tax under the 2025 tax brackets Australia framework (before any offsets or deductions).
Higher-income Earners ($135,001 – $190,000)
Taxpayers in this bracket will pay 37% on every dollar earned above $135,000. The extension of this bracket from $180,000 to $190,000 means those earning between these amounts will now pay less tax than under the previous system.
Impact example: A person earning $170,000 will pay approximately $31,288 + $12,950 = $44,238 in income tax under the new tax brackets Australian system (before any offsets or deductions).
Highest-income Earners ($190,001 and above)
The highest income tax rate remains at 45% for incomes above $190,000, though the threshold has increased from previous years.
Impact example: Someone with a taxable income of $250,000 will pay approximately $51,638 + $27,000 = $78,638 in income tax under the 2025 tax brackets Australia structure (before any offsets or deductions).
These changes to tax brackets aim to provide targeted tax relief across various income levels.
Are You Paying More or Less Tax in 2025?
Whether you’ll pay more or less tax under the new tax brackets Australia has implemented depends on your specific income level and circumstances. Here’s a general overview:
Paying less = Most taxpayers earning between $45,000 and $190,000 will see modest tax reductions due to the adjusted thresholds.
Paying more = High-inflation environments may push some earners into higher tax brackets through “bracket creep,” potentially offsetting the benefits of the tax changes.
No change = Those earning below $18,200 will continue to pay no income tax.
If you want to understand exactly how the 2025 tax changes affect your situation, seeking professional guidance is wise.
Infinity 22 offers expert accounting and tax advisory services tailored to your personal and business needs. Our team can help you make sense of the latest updates to the tax brackets in Australia, optimise your tax position, and ensure full compliance with ATO regulations.
Ready to take control of your tax? Contact Infinity 22 and let the professionals guide you with confidence.
