Tax brackets 2024-2025
If there's one thing Australians struggle to get their head around, it's tax, particularly understanding tax brackets and how the system works.
Put simply, tax brackets determine how much tax you owe based on your income, and knowing how they operate can help you manage your finances more strategically.
Tax brackets usually shift depending on the financial year, and on July 1, the Australian government introduced new 2024/2025 tax brackets.
Whether you're a first-time earner, a seasoned taxpayer or someone simply trying to navigate the complexities of the tax system, understanding tax brackets is key to minimising your tax liability and ensuring you're not paying more than you need to.
In this how-to guide, we'll examine the 2024/2025 tax brackets, how they work and what impact they may have on your income.
We'll also share practical strategies for managing your finances for 2025 and beyond.
What are tax brackets?
Tax brackets are structured to apply different tax rates to varying income levels. This means the more you earn, the higher the percentage of tax you'll pay on the additional income.
However, not all of your income will be taxed at the highest rate - each portion is taxed at the corresponding rate for that bracket.
For example, if your taxable income falls into the $45,001 to $135,000 bracket, only the portion over $45,000 will now be taxed at 30%.
This tiered approach ensures lower-income earners are not taxed as heavily as those earning higher incomes.
How are tax brackets calculated in Australia?
Tax brackets are set by the government and are often influenced by economic conditions and policy decisions.
Changes to tax brackets can occur in response to inflation, government budgets or economic activity. For instance, governments may lower tax rates or widen tax brackets to stimulate spending during economic downturns.
2024-2025 income tax rates
On January 25, 2024, the Australian Government announced changes to individual income tax rates and thresholds, effective from July 1 this year.
Often called the stage 3 tax cuts, these changes aim to provide tax relief for many Australians. Some of these changes, included:
Reduced tax rates: The 19% tax rate has been lowered to 16%, and the 32.5% tax rate has been reduced to 30%.
Increased tax thresholds: The threshold for the 37% tax bracket has been increased from $120,000 to $135,000, and the threshold for the 45% tax bracket has been increased from $180,000 to $190,000.
Here is a detailed comparison of what's different between the 2023/2024 and the 2024/2025 tax brackets:
These changes mean that many Australians will have more money in their pockets, particularly those within the lower- and middle-income tax brackets.
However, it's important to note that the full economic impact of these tax cuts is still being assessed.
How does the 2024/2025 tax bracket impact your take-home pay?
Your tax bracket directly influences how much of your salary ends up in your pocket.
To calculate your take-home pay, it's essential to deduct both your income tax and the Medicare levy, which is generally 2% of your taxable income. High earners might also be subject to the Medicare Levy Surcharge, which can further reduce take-home pay.
Tax planning tips for 2025 and beyond
Taking advantage of tax planning strategies can help you minimise the amount of tax you need to pay, ensuring you keep more of your hard-earned income. Here are several key strategies to consider as you plan for 2025:
1. Use deductions to your advantage
Maximising tax deductions is one of the most effective ways to reduce your taxable income and potentially move into a lower tax bracket.
Common deductions include work-related expenses (such as uniforms, equipment and travel), charitable donations or investment-related costs. Keep detailed records of your expenses throughout the year and seek professional advice to ensure you claim everything you're entitled to.
2. Superannuation contributions
Making additional contributions to your superannuation fund is a great way to save for retirement and a tax-effective strategy.
Contributions made under the concessional (before-tax) limit are taxed at a lower rate of 15%, which can reduce your taxable income. This is a smart move for those nearing the upper end of a tax bracket, as it could push you into a lower bracket while boosting your retirement savings.
3. Capital gains timing
If you're selling investments such as shares or property, the timing of your sale can have a significant impact on your tax liability.
Capital gains are added to your assessable income, so it may be wise to delay selling until a year when your income is lower, reducing the marginal tax rate you'll pay on the capital gain.
4. Keep on top of policy changes
Tax policies and rules can change from year to year, often as part of the federal budget. For instance, tax offsets or rebates may be introduced, extended or phased out, which could impact your tax return. Stay informed by regularly checking government announcements or seeking advice from a tax professional to ensure you're taking advantage of all available benefits.
5. Consider investment in tax-effective structures
Investing through tax-effective structures, such as family trusts or self-managed super funds (SMSFs), can help you minimise taxes.
These structures often have lower tax rates or offer greater flexibility in distributing income, allowing you to manage tax liability more effectively. If this strategy aligns with your goals, it's highly recommended to seek the advice of a financial advisor, as SMSFs do come with strict regulations.
Money - supporting everyday Australians on their journey to financial freedom
With another tax cut on the way for Australians in the following financial year, understanding how tax brackets work now can empower you to make informed financial decisions for the future, take advantage of deductions and maximise your tax refund.
If you're looking to learn more about tax, Money is your go-to resource. At Money, we offer the latest insights and expert advice on managing your money, navigating the tax system and reaching your financial goals. Browse our website for articles, tools and personalised tips that can help you take control of your financial future.
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