Stage 3 tax cuts, brackets, Medicare Levy, offsets, and how superannuation fits into the bigger picture.
Australian income tax looks deceptively simple at first — five brackets, one national system, no state-level variation. But between the Stage 3 tax cuts, the Medicare Levy, the Low Income Tax Offset, and superannuation sitting alongside it all, understanding your total tax picture takes a bit more unpacking than the headline brackets alone suggest.
| Taxable income | Tax rate |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 + 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 + 37c for each $1 over $135,000 |
| Over $190,000 | $51,638 + 45c for each $1 over $190,000 |
The Stage 3 tax cuts, effective from 1 July 2024, represented the most significant restructuring of Australian income tax brackets in years. The most notable changes: the old 19% entry rate dropped to 16%, the middle 32.5% rate dropped to 30% and was extended to cover a much wider income range (up to $135,000, previously capped much lower), and the top threshold moved from $180,000 to $190,000. In practice, this meant a tax cut for every taxpayer, with the largest proportional benefit going to low and middle income earners compared to the originally legislated (and since replaced) Stage 3 plan.
On top of income tax, most taxpayers pay a 2% Medicare Levy, funding Australia's public health system. There's a low-income reduction for those earning below $26,000 (single, 2025-26), and higher earners without private hospital cover may face an additional Medicare Levy Surcharge of 1% to 1.5%.
LITO reduces your tax payable — not your taxable income — for lower earners. It's worth up to $700 for incomes at or below $37,500, phasing out gradually and disappearing entirely at $66,667. This offset is applied automatically; you don't need to claim it separately.
Your employer must pay 11.5% of your ordinary time earnings into superannuation, on top of your salary — it's not deducted from your take-home pay. You can also voluntarily "salary sacrifice" additional pre-tax income into super, which is taxed at a flat 15% inside the fund rather than your marginal rate, a significant saving for most earners in the 30%, 37%, or 45% brackets.
Tax: $4,288 + 30% × ($80,000 − $45,000) = $14,788. LITO: nil (income above the $66,667 phase-out point). Medicare Levy: $80,000 × 2% = $1,600. Total tax and levy: $16,388. Take-home pay: $63,612. Employer super on top: $9,200.
Non-residents for tax purposes face a meaningfully different system — no tax-free threshold, higher rates on lower income bands, no LITO, and no Medicare Levy. If your residency status is unclear (for example, if you've spent significant time working in Australia on a visa), it's worth getting this right, since the difference in tax owed can be substantial.
Sources: ATO.gov.au income tax rates, Medicare Levy, and Super Guarantee information. This article is for informational purposes only and does not constitute tax advice. Always consult a registered tax agent for advice specific to your situation.