Understanding the Australian Tax System
Overview
- Australian tax system: Progressive tax structure
- Higher income = Higher tax rates
- Consists of five tax brackets
Tax Brackets (2023-2024)
- First Bracket (Tax-free)
- Second Bracket
- $18,201 to $45,000: 19% tax
- Third Bracket
- $45,001 to $120,000: $5,092 + 32.5% for amounts in this range
- Fourth Bracket
- $120,001 to $180,000: $29,467 + 37% for amounts in this range
- Fifth Bracket
- Over $180,000: $51,667 + 45% for amounts over $180,000
Example Calculation: James (Income $220,000)
- First Bracket:
- Second Bracket:
- Third Bracket:
- $24,375 (32.5% of $75,000)
- Fourth Bracket:
- Fifth Bracket:
- Total Tax:
- Additional Medicare Levy:
- 2% of income ($220,000) = $4,400
Additional Information
- Medicare Levy Surcharge for high income earners without private cover
- Income > $93,001 (single) or > $186,001 (family)
- Additional 1% surcharge
Common Misconception
- Pay rise doesn't push entire salary to higher tax bracket:
- Only the increment is taxed at a higher rate
- Example: $1,000 increase from $45,000 taxed at 32.5% on $1,000 only
Example Calculations Using Online Tool
a. Example 1: Sally (Income $45,000)
- Falls into Second Bracket:
- Medicare Levy: 2% = $900
- Total Tax Payable: $5,992
b. Example 2: Ben (Income $70,000)
- Falls into Third Bracket
- $5,092 (Second) + $8,125 (Third)
- Medicare Levy: 2% = $1,400
- Total Tax Payable: $14,617
c. Example 3: Mia (Income $110,000)
- Falls into Third Bracket
- $5,092 (Second) + $21,125 (Third)
- Medicare Levy: 2% = $2,200
- Total Tax Payable: $28,417
Scenario 2: Mia (Post Pay Rise to $130,000)
- Falls into Fourth Bracket
- $29,467 (Third) + $3,700 (Fourth)
- Medicare Levy: 2% = $2,600
- Total Tax Payable: $35,767
- Take Home Pay Increment: $12,650
Conclusion
- Online Income Tax Calculator for ease
- Tax rates vary annually; verify current rates
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