Published: August 2025
Tax brackets are the foundation of Australia’s progressive income tax system, where higher earners pay a greater proportion of tax. For businesses, understanding tax brackets is crucial for managing payroll, setting salaries, and planning taxes effectively.
The Australian Taxation Office (ATO) sets these brackets annually, applying them to individual incomes, including those of sole traders, partners, and employees. This guide explains tax brackets for residents and non-residents, the Medicare levy, tax offsets, and upcoming changes to help businesses ensure compliance and optimise finances.
Tax brackets are income ranges that determine the rate of tax applied to taxable income, calculated as assessable income minus deductions. Australia’s progressive system means tax rates increase with income, with each portion of income taxed at its specific rate. For businesses, this impacts employee withholding taxes, owner salaries, and overall tax liabilities. The ATO provides detailed rates at this website.
Resident tax brackets include a tax-free threshold, while non-residents are taxed from the first dollar earned. Rates exclude the Medicare levy and tax offsets, which can adjust the final tax payable.
Australian residents are taxed on worldwide income. For the 2024-25 financial year, resident tax rates are as follows:
For example, a business owner in Sydney earning $60,000 taxable income pays no tax on the first $18,200, 19% on the next $26,800 (approximately $5,092 tax), and 32.5% on the remaining $15,000 (approximately $4,875 tax), totaling about $9,967 before offsets or levies.
For 2025-26, the ATO has announced changes to reduce tax for low and middle-income earners:
Non-residents are taxed only on Australian-sourced income, without a tax-free threshold. For 2024-25:
For instance, a foreign consultant earning $50,000 from Australian work pays 32.5% on the entire amount, resulting in $16,250 tax.
For 2025-26, non-resident rates adjust to:
Non-residents generally do not pay the Medicare levy, as they may not be entitled to Medicare benefits.
The Medicare levy is an additional 2% on taxable income for most residents, funding Australia’s public health system. Low-income earners may qualify for reductions or exemptions. For singles, the full levy applies above $26,000, with reductions between $23,226 and $26,000. Families and seniors have higher thresholds, detailed on their website.
For example, an employee earning $50,000 pays a $1,000 Medicare levy (2% of $50,000) unless eligible for reductions.
Tax offsets, or rebates, reduce the tax payable. Common offsets include:
For example, a sole trader earning $40,000 in 2024-25 may reduce their tax by $700 via LITO, lowering their liability. Check eligibility at on the ATO website.
For example, a Brisbane business with five employees uses ATO tax tables to withhold $10,000 in PAYG quarterly, ensuring compliance and accurate super contributions.
Tax brackets are income ranges with specific tax rates, applied progressively to taxable income, as set by the ATO.
They determine PAYG withholding for employees and tax liabilities for sole traders or partners.
A 2% levy on taxable income for most residents, with exemptions for low-income earners, per ATO guidelines.
Yes, non-residents face higher rates without a tax-free threshold and generally don’t pay the Medicare levy.
Claim eligible offsets, deductions, and engage a chartered accountant for strategic planning.
For Australian businesses managing tax obligations, Scale Suite offers expert financial management services. As a provider with chartered accountants who are members of CAANZ, we deliver tailored solutions, including accurate PAYG withholding calculations, BAS preparation, and planning to align with ATO tax brackets. Our services ensure compliance and streamline payroll using tools like Xero. Scale Suite provides cost-effective support to enhance your financial efficiency and drive business success.
Scale Suite delivers finance and human resource services to support the growth of Australian businesses. Our Sydney-based team creates custom packages tailored to your needs, seamlessly integrating with your existing teams. From comprehensive finance services and strategic business support to recruitment and HR services, we reduce costs, save time, and help you scale confidently.
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