Income tax

The Australian income tax system for individuals is based on marginal tax rates and income thresholds. The higher a person’s taxable income in a financial year (July 1 to June 30), the more tax they pay.

In addition, most Australians pay a Medicare levy of 2% of their taxable income. Those earning higher taxable income amounts are also liable for an additional Medicare levy surcharge of 1 to 1.5%.

A person’s taxable income sources can include:

• employment income,
• super pensions and annuities (if they aren’t tax-free),
• some government benefits,
• investment income,
• business, partnership and trust income,
• foreign income, and
• crowdfunding income.

An individual can reduce their taxable income by claiming tax deductions. Common tax deductions include:

• work-related expenses,
• the cost of managing tax affairs,
• gifts and donations,
• interest, dividend and other investment income deductions, and
• personal super contributions.

Individuals can also reduce their tax payable if they are eligible for tax offsets, such as:

• the Seniors and Pensioners Tax Offset (SAPTO),
• the Low Income Tax Offset (LITO), and
• the Low and Middle Income Earners Tax Offset (LMITO).

It’s important to understand that unlike tax deductions, tax offsets can only be used to reduce the amount of tax payable, they can’t be used to generate a tax refund from the Australian Taxation Office (ATO). Any unused tax offset is non-refundable.