Australia ATO Resident Tax Rates 2025-26: Stage 3 Cuts, Brackets, and Medicare

Australia's 2025-26 (FY2025-26) resident tax rates reflect the Stage 3 tax cuts that took effect on 1 July 2024 — one of the largest personal income tax changes in Australian history. The key changes: the 19% rate bracket was reduced to 16%; the 32.5% rate was reduced to 30% and extended from an upper limit of $120,000 to $135,000; and the 37% bracket was narrowed.

Australia's tax year runs from 1 July 2025 to 30 June 2026 (FY2025-26) — not the calendar year. This is a common source of confusion for expats and for comparing Australian rates to other countries. The ATO rates described here are confirmed for FY2025-26.

FY2025-26 Tax at Every Income Level: The Full Picture

Tax calculations for Australian residents include income tax + Medicare levy. The Low Income Tax Offset (LITO) reduces tax for lower earners. Here are the key figures for FY2025-26:

• $40,000: Income tax $3,488; Medicare $800; LITO reduces by $575; total: ~$3,713. Effective rate: 9.3%
• $60,000: Income tax $8,788; Medicare $1,200; LITO reduces by $100; total: $9,888. Effective rate: 16.5%
• $100,000: Income tax $20,788; Medicare $2,000; total: $22,788. Effective rate: 22.8%
• $150,000: Income tax $36,838; Medicare $3,000; total: $39,838. Effective rate: 26.6%
• $200,000: Income tax $56,138; Medicare $4,000; total: $60,138. Effective rate: 30.1%
• $300,000: Income tax $101,138; Medicare $6,000; total: $107,138. Effective rate: 35.7%

Note: These calculations exclude employer superannuation (12% in FY2025-26, effective 1 July 2025 — the final legislated Super Guarantee increase, and unchanged for FY2026-27). Australian employers are required to pay super on top of your salary — if your salary package is 'exclusive of super', your true total compensation is salary + 12%.

Stage 3 Tax Cuts: What Changed from July 2024

The Stage 3 tax cuts (Labor government's revised version) took effect from 1 July 2024 and apply in FY2024-25 and FY2025-26. Key changes from the previous rate schedule:

What changed:

• 19% rate (previously $18,201–$45,000) → reduced to 16%
• 32.5% rate (previously $45,001–$120,000) → reduced to 30%, extended to $135,000
• 37% bracket (previously $120,001–$180,000) → now $135,001–$190,000
• 45% threshold raised from $180,000 → $190,000

Who benefited most: The Stage 3 redesign (compared to the original legislated Stage 3) specifically targeted middle-income earners more than high earners. Under the original Stage 3, the 32.5% rate would have extended all the way to $200,000 and the 19% rate would have been abolished. The revision gave more benefit to those earning $40K–$135K.

Medicare Levy and Medicare Levy Surcharge

The Medicare levy is 2% of taxable income, with a phase-in for lower incomes:

• Below the low-income threshold (roughly $27,000–$28,000 for singles): No Medicare levy
• From the threshold to about $34,000–$35,000: Reduced Medicare levy (phases in at 10 cents per dollar)
• Above that: Full 2% Medicare levy

Medicare Levy Surcharge (MLS) — additional tax for high earners without private health insurance:

• Income $101,001–$118,000: 1.0% surcharge
• Income $118,001–$158,000: 1.25% surcharge
• Income above $158,000: 1.5% surcharge

The MLS is a powerful incentive to maintain private hospital cover. For someone earning $120,000 without private insurance, the 1.25% MLS adds $1,500/year — often more than the cost of basic hospital cover (~$900–$1,500/year for a 40-year-old). Most financial advisors recommend private hospital cover for incomes above $101,000 purely to avoid the MLS.

Non-Residents vs Residents: Critical Tax Difference

Australian non-residents (those spending fewer than 183 days in Australia in a year, or those without an intention to reside in Australia) face different tax rates:

• Non-resident rate: 30% on first $135,000 of Australian-source income
• Non-resident rate: 37% from $135,001–$190,000
• Non-resident rate: 45% above $190,000
• No tax-free threshold for non-residents
• No Medicare levy for non-residents

This is critical for Australian citizens living overseas who may be classified as non-residents. A non-resident earning $50,000 of Australian income pays $15,000 (30%) vs a resident paying about $6,538 (13.1% effective, after LITO and Medicare levy). The residency distinction can mean tens of thousands of dollars annually and is a major planning consideration for Australians working abroad.