Question 1

What is the tax-free threshold in Australia for FY2026 and FY2027?

Accepted Answer

The tax-free threshold is $18,200 for both FY2025-26 (2026FY) and FY2026-27 (2027FY). If you are an Australian resident and your taxable income is below $18,200, you pay no income tax. You can claim the tax-free threshold when completing your Tax File Number (TFN) declaration with your employer.

Question 2

What is the Medicare Levy and who pays it?

Accepted Answer

The Medicare Levy is a 2% levy on your taxable income that funds Australia's public health system (Medicare). Australian tax residents pay it. If your income is below the low-income threshold (approximately $26,000 for singles in FY2026), you may be fully or partially exempt. Low-income earners in the phase-in range ($26,000–$32,500) pay a reduced rate of 10 cents for each $1 over the threshold.

Question 3

What is the Medicare Levy Surcharge (MLS)?

Accepted Answer

The Medicare Levy Surcharge is an additional 1%–1.5% levy on top of the standard Medicare Levy. For FY2025-26, it applies to Australian residents earning over $101,000 (single) or $202,000 (family) who do NOT hold an appropriate level of private hospital insurance. Taking out private hospital cover exempts you from this surcharge and can often save you more money than the cost of the insurance itself.

Question 4

What is the Low Income Tax Offset (LITO)?

Accepted Answer

LITO is a tax offset available to Australian tax residents. For FY2026 and FY2027, the maximum LITO is $700 for incomes up to $37,500. It reduces by 5 cents per dollar for income between $37,500 and $45,000, then by 1.5 cents per dollar between $45,000 and $66,667. Above $66,667, LITO is zero. It directly reduces the income tax you owe, not your taxable income.

Question 5

How do I include my HELP/HECS debt repayment?

Accepted Answer

If you have a HELP (Higher Education Loan Program) or HECS debt, repayments are calculated based on your repayment income (not just salary). For FY2025-26, repayments begin once your income exceeds $67,000. The rate starts at 1% and increases progressively up to 10% for higher incomes. Repayments are made through the tax system when you lodge your tax return, not directly to the government throughout the year.

Question 6

What is superannuation and does it affect my tax?

Accepted Answer

Superannuation (super) is Australia's mandatory retirement savings system. The Super Guarantee (SG) rate for FY2025-26 is 12% of your ordinary time earnings — this rate remains at 12% for FY2026-27, representing the final legislated rate after the staged increases. These contributions are generally taxed at 15% within your super fund. Employer super contributions are NOT deducted from your take-home pay; they are additional payments your employer makes on top of your salary.

Question 7

What is the difference between effective and marginal tax rate?

Accepted Answer

Your marginal tax rate is the rate you pay on your last dollar of income — for example, if you earn $120,000 your marginal rate is 32.5%. Your effective tax rate is your total tax paid divided by your gross income, which is always lower because the lower portions of your income are taxed at lower rates. For $120,000 annual income, the effective rate would be around 22%. The marginal rate matters for decisions like salary sacrificing, while the effective rate tells you what fraction of income you actually keep for the government.

Question 8

Are working holiday makers taxed differently?

Accepted Answer

Yes. Working holiday makers (visa subclass 417 or 462) are taxed at a flat 15% for income up to $45,000, then at ordinary resident rates for income above that. They are NOT entitled to the tax-free threshold or LITO. They also pay the Medicare Levy if they are from a country with a reciprocal health agreement with Australia (e.g., UK, Ireland, New Zealand).

Question 9

What is the difference between a tax resident and foreign resident for tax purposes?

Accepted Answer

Tax residency in Australia is separate from visa status. Australian tax residents benefit from the tax-free threshold ($18,200), LITO, and reduced lower bracket rates. Foreign residents for tax purposes are taxed at a flat 30% on all Australian-sourced income up to $135,000, then at higher rates (37% to $190,000, 45% above). Foreign residents do not receive the tax-free threshold or LITO. The ATO has tests to determine your residency status — if you're unsure, seek advice.

Question 10

How accurate is this calculator?

Accepted Answer

This calculator uses the official ATO published tax rates and thresholds for FY2025-26 and FY2026-27. It covers income tax, LITO, Medicare Levy, Medicare Levy Surcharge, and HELP repayments. It does not account for salary packaging, fringe benefits, investment income, rental income, capital gains, or specific tax situations. Always consult a registered tax agent or the ATO for advice specific to your circumstances.

Taxable Income	Rate	Tax Calculation
$0 – $18,200	Nil	$0
$18,201 – $45,000	19%	19¢ per $1 over $18,200
$45,001 – $135,000	32.5%	$5,092 + 32.5¢ per $1 over $45,000
$135,001 – $190,000	37%	$34,342 + 37¢ per $1 over $135,000
$190,001+	45%	$54,682 + 45¢ per $1 over $190,000

Taxable Income	Rate	Tax Calculation
$0 – $135,000	30%	30¢ per $1
$135,001 – $190,000	37%	$40,500 + 37¢ per $1 over $135,000
$190,001+	45%	$61,200 + 45¢ per $1 over $190,000

Taxable Income	Rate	Tax Calculation
$0 – $45,000	15%	15¢ per $1
$45,001 – $135,000	32.5%	$6,750 + 32.5¢ per $1 over $45,000
$135,001 – $190,000	37%	$36,000 + 37¢ per $1 over $135,000
$190,001+	45%	$56,350 + 45¢ per $1 over $190,000

Australian Income
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2025–26 Australian Tax Rates (Stage 3)

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Australian IncomeTax Calculator