Income tax is levied on taxable income, which is calculated as assessable income less allowable deductions. Gross tax on taxable income is reduced by tax offsets, to arrive at net tax payable or refundable.
Individuals
The Australian Taxation Office (ATO) publishes lists of assessable income, allowable deductions and tax offsets for individuals. Sole traders declare business income in their individual income tax return, they are not required to complete a separate return for their business. Tax on individuals is charged at marginal rates. You can use the tax tables to determine how much you are taxed.
Resident tax rates 2019-20
| Taxable income | Tax on this income |
| $0 – $18,200 | Nil |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $90,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $90,001 – $180,000 | $20,797 plus 37c for each $1 over $90,000 |
| $180,001 and over | $54,097 plus 45c for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%.
Foreign resident tax rates 2019-20
| Taxable income | Tax on this income |
| $0 – $90,000 | 32.5c for each $1 |
| $90,001 – $180,000 | $29,250 plus 37c for each $1 over $90,000 |
| $180,001 and over | $62,550 plus 45c for each $1 over $180,000 |
The above rates include changes implementing changes announced in the 2018-19 Federal Budget.
MORE: See the ATO web site for more information on Individual Income Tax Rates.
Companies
A company is a distinct legal entity with its own income tax liability, and is required to lodge a Company income tax return. The company tax rate for base rate entities is 27.5% (to 30 June 2020) and 30% for all other corporate entities. It is proposed to progressively reduce the lower corporate tax rate to 25% for all corporate entities by 2026-27.
Partnerships
A partnership carrying on a business must complete a Partnership tax return to show all income earned and deductions claimed for the income year, and how the net income or loss was shared between the partners. The partnership itself is not a taxable entity. Rather, each partner includes a share of the partnership’s net income or loss in the partner’s taxable income.
Partnerships where the only income is from joint investments (for example, jointly owned shares or rental properties) are not required to lodge a Partnership income tax return. Rather, each partner’s share of the joint income is declared in the partner’s own tax return.
Trusts
Where a beneficiary (not under a legal disability) is presently entitled to a share of net income of a trust, the trustee is not taxable. Rather, each such beneficiary includes a share of the trust’s net income in the beneficiary’s taxable income. A trust cannot distribute a net loss to the beneficiaries, the loss is carried forward to offset against net income in later years.
Where a presently entitled beneficiary is under a legal disability (for example, under 18 years of age, a non-resident, or incapable of managing his/her own affairs), the trustee is taxable on the beneficiary’s share of the trust’s net income. The tax rates correspond to the tax rates that would otherwise be payable by the beneficiary.
Where no beneficiary is presently entitled to part of the trust’s net income, the trustee is taxable. The tax rates depend on the trust’s particular circumstances, for example income of deceased estates attracts a different tax rate depending on the stage of administration of the estate.
Superannuation funds
A superannuation fund is a distinct legal entity with its own income tax liability and is required to lodge an income tax return. Different income tax return forms are used by self-managed superannuation funds and other superannuation funds. The superannuation fund tax rate is generally 15%. Higher rates apply to net non-arm’s length income, and contributions by or on behalf of a member who has not quoted his/her tax file number to the trustee.
Tax thresholds and offset entitlements
There are a number of new income tax thresholds for the 2018–19, 2022–23 and 2024–25 income years. These changes apply to residents, foreign-residents and working holiday makers.
For 2018–19, 2019–20, 2020–21 and 2021–22, income the top threshold of the 32.5% tax bracket will increase from $87,000 to $90,000.
A new low and middle income tax offset applies for 2018–19, 2019–20, 2020–21 and 2021–22 income years.
Australian resident individuals (and certain trustees) whose taxable income does not exceed $126,000 are entitled to the new low and middle income tax offset up to $1,080. The maximum low and middle income tax offset apply to taxpayers with a taxable income that exceeds $48,000 but is not more than $90,000.
Entitlement to the new offset is in addition to the existing low income tax offset up to $455, and is available on assessment after you lodge your income tax return.