Australian income tax follows a clear sequence — from assessable income down to the final amount owed, including the Medicare Levy that sits alongside it. Here's the full process.
Add up your assessable income
Salary and wages, business income, rental income, capital gains, and other taxable income sources combine into your assessable income for the financial year (1 July to 30 June).
Subtract allowable deductions
Work-related expenses, self-education costs directly connected to your job, and donations to registered charities reduce your assessable income to arrive at taxable income.
Apply the resident marginal tax rates
Australia uses a tax-free threshold ($18,200) followed by progressive brackets rising to 45%. Only income within each bracket is taxed at that bracket's rate.
Add the Medicare Levy
Most residents pay an additional 2% Medicare Levy on top of income tax, funding Australia's public healthcare system — this is calculated separately, not folded into the marginal brackets.
Apply offsets
Tax offsets (like the Low Income Tax Offset) directly reduce the tax payable, unlike deductions which reduce taxable income before the rate is applied.
Worked example
| Item | Amount |
|---|---|
| Assessable income | $90,000 |
| Deductions | − $2,000 |
| Taxable income | $88,000 |
| Income tax (2025-26 brackets) | ≈ $17,138 |
| Medicare Levy (2%) | + $1,760 |
| Total tax | ≈ $18,898 |
Get your exact number including the Medicare Levy.
Use the Take-Home Pay Calculator →Don't forget superannuation
Your employer's compulsory 12% Superannuation Guarantee contribution is separate from your take-home pay and isn't taxed at your marginal rate — it's taxed concessionally within your super fund instead. See our Superannuation Calculator.
This is a simplified walkthrough — it doesn't cover every offset, the Medicare Levy Surcharge, or HECS-HELP repayments. For your exact figure, use our calculator or consult a registered tax agent.