How Much Tax Should I Pay As an Individual?

If you’re wondering what all this tax talk is about and how it might affect you, read on for our guide to income tax in Australia.

The amount of tax you should pay an individual will depend on a number of factors, such as your income, which defines what your marginal tax rate will be. Your residency is also taken into account, along with your eligibility for deductions and offsets. Read on for more information.

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    How is tax calculated?

    Your tax is calculated based on your income (see the table above for tax rates) though the amount you pay can be altered by maximising your deductions and offsets. A deduction is any expense that is directly related to your work, but the Australian Tax Office (ATO) holds the final decision as to whether you can claim it.

    These are added together and deducted from your total income, leaving you with your taxable income. Which you are then taxed on. Tax offsets and your PAYG are considered as credits, which can reduce your payable net tax amount.

    how is tax calculated

    What is a deduction?

    A deduction is an expense that is directly related to how you earn your income. In the tax sense these expenses are considered necessary for your earnings, and so the government allows you to deduct the money spent on them from your earned income, thus lowering your tax rate.

    Deductions are complicated and there are a host of rules around what you can and can’t deduct. We’ve got a whole section devoted just to them, if you want to know more then you should check it out.

     For more information on deductions, see this page.


    What are tax offsets?

    These are benefits that directly reduce the amount of tax payable on your income. Generally, offsets can reduce the amount payable on your taxable income directly. They are often considered more valuable than deductions, because it applies to your basic tax payable, rather than your assessable income.

    What is PAYG?

    Pay-as-you-go (PAYG) income tax is tax that is paid incrementally as your earn, throughout the year. It’s designed to help you pay tax gradually, and avoid getting slapped with a hefty bill at the end of the financial year. The tax collects over the financial year is treated as credit in assessing tax payable after lodging your return.

    It was introduced in January 2000 and affects individuals, sole traders, companies, partnerships, trusts and superannuation funds, operating businesses, non-profit organisations and government bodies.

    What are Australia’s marginal tax rates?

    The following table shows the ATO’s tax rates for this tax year 2015-16 given that you’re an Australian resident.

    Taxable incomeTax on this income
    0 – $18,200Nil
    $18,201 – $37,00019c for each $1 over $18,200
    $37,001 – $87,000$3,572 plus 32.5c for each $1 over $37,000
    $87,001 – $180,000$19,822 plus 37c for each $1 over $87,000
    $180,001 and over$54,232 plus 45c for each $1 over $180,000

    The above rates do not include the Medicare levy of 2%

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    The following table shows the ATO’s tax rates for this tax year 2015-16 given that you’re a foreign resident.

    Taxable IncomeMarginal Tax Rate
    $0 - $87,00032.5c for each $1
    $87,001 - $180,000$28,275 plus 37c for each $1 over $87,000
    $180,001 and over$62,685 plus 45c for each $1 over $180,000

    What is the ATO? What powers do they have?

    The ATO are the branch of government responsible for administering tax legislation. It’s important to note that they don’t make any tax legislation. When you’re filing your return online it will go to them, they’ll process your return, they handle deductions and all matters relating to tax law.

    They’re a government agency, and so have the full weight of the law with them and can issue both public and private rulings. This includes judging on income flows and tax deductions in regards to specific tax legislation.

    What is income tax?

    “The hardest thing in the world to understand is the income tax.” – Albert Einstein

    If Einstein couldn’t even get to grips with it, then what good have the rest of us got? Fortunately, he was slightly exaggerating. Income tax is a charge imposed by governments on all financial income generated by all entities within their governing jurisdiction.

    This includes individuals, businesses, trusts and corporations, though this article will only cover individuals. Australia, like many countries, has a progressive income tax system, which means that the effective tax rates increase for high earners.  This passes a greater tax burden to those who can afford it, and reduces the tax paid by those who make less money.

    It is also based on a self-assessment system, where the income tax year starts from 1 July to 30 June the next year. Tax returns are due on 31 October and is collected overtime through PAYG (see below).

    Income tax within Australia is based on taxable income received by individuals and entities.

    • Australian residents and their worldwide income are liable for tax.
    • Non-residents are liable for tax on on their income from an Australian source.
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    What is capital gains tax?

    A capital gains tax (CGT) is a tax incurred by a tax paying entity on the profits they have realised on an asset, through the sale of a capital asset for a price higher than the purchase price. So things like shares, property and bonds. It’s important to note that your main residence is generally exempt from capital gains tax.

    If you’ve sold assets for a profit then you may be liable to pay capital gains tax, however, remember that capital gains tax is only payable when a CGT event occurs (like when the asset is sold or transferred), so, for example, if you own a share that increases every year you don’t pay any tax on it until you dispose of it.

     Click here to learn more about CGT.


    History of taxation in Australia

    Surprisingly, income tax is still a relatively new concept, with the first modern income tax being levied in 1799 in the United Kingdom. The income tax was introduced by William Pitt the Younger to pay for weapons and equipment to fight the French Revolutionary War.

    Here in Australia income taxes were introduced in the late 19th century, with the first widely believed to be in 1884 in South Australia. The rate was six pence of every pound, or around 2.5% (remember, pounds then were not divisible by 100). Since then income tax has spread to almost every country, and sadly rates have continued to climb, still on the bright side our quality of life has gone up too, and a big reason for that is that governments use our tax money to pay for things that make our life better. So if you’re in a tizz this tax season, and wondering why things have to be like this, just remember the last time you took a long, free walk in a beautiful public park, and remember that this is how you pay for it.

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    What is tax for?

    Put in it’s simplest terms, tax is how we pay for things that seem to be free. The three levels of government (federal, state and local) can take our tax, and spend it providing us with services. Things like parks, libraries, drainage gutters, kerbs, roads, electricity grid, the police force, and the military. A whole host of things that we can’t imagine paying for in person, is in fact paid for by our taxes. And while a lot of people complain about taxes, they really are the neat way of doing business in the modern world.

    Frequently asked questions

    Can I claim my internet use?

    Maybe. If you’ve worked from home, or taken an online course then you might be able to if it’s directly correlated with earning your income.

    What happens if I don’t lodge a tax return?

    You’re required by law to lodge a return, and failing to do so can often incur penalties and fines.

    Should I use a tax service for lodging my return?

    This depends on your circumstance and how comfortable you are taking finances into your own hands. If you’d rather just pay a tax service to look after the whole thing for you then you’ll have a variety of options to choose from.
    Click here for our guide to tax returns online including previews of the tax services available.

    DISCLAIMER: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information applicability to their own particular circumstances.

    Shirley Liu

    Shirley is's publisher for banking and investments. She is currently studying a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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    4 Responses to How Much Tax Should I Pay As an Individual?

    1. Default Gravatar
      Save | September 12, 2016

      My 18yr old son earns $320.97 a fortnight casual. How much tax should be deducted from his income.

      • Staff
        Clarizza | September 13, 2016

        Hi Save,

        Thanks for the question.

        Tax is calculated based on gross income – you can check where your son’s salary falls in the tax threshold table shown on this page. It will show how tax is calculated based on the threshold. If $320.97 is your son’s gross fortnightly income then it looks like they earn under the threshold and do not need to pay tax. However, it should be noted we are a comparison website and provide general advice only.

        If you would like to seek further advice, you can speak to an online tax agent.


    2. Default Gravatar
      Bren | January 24, 2016

      As an employer with my first part time worker about to go on the books, what process do I take to ensure my worker is taxed at the proper rate and how do I calculate the tax and medicare levy as well as superannuation. The worker will be earning between $450 – $800 per week depending on work flow.
      What steps do I physically do to ensure I am doing the correct thing for all concerned

      • Staff
        Shirley | January 25, 2016

        Hi Bren from Alice,

        Thanks for your question.

        As an employer we highly recommend that you speak to a qualified accountant to ensure your business is compliant when paying your employees. can only provide general advice so we cannot provide the steps you physically need to take.

        You may want to consider heading to the employers section of the ATO website and ensure that you’ve registered for PAYG. You can also refer to the marginal income tax rates available on the ATO website which give an indication of how much your employee should be taxed.


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