Taxable income is the amount of income on which an individual or entity must pay tax to the Australian Taxation Office (ATO). It is calculated by taking your assessable income from all sources and subtracting eligible deductions. The resulting figure determines your tax liability based on the applicable tax rates.

What is taxable income?

Taxable income represents the portion of your total earnings that is subject to income tax in Australia. It forms the basis for calculating how much tax you will pay in a financial year (which runs from 1 July to 30 June in Australia).

The formula for calculating taxable income is: Taxable Income = Assessable Income – Allowable Deductions

Determines which tax bracket you fall into and consequently how much tax you will pay.

Components of taxable income

Assessable income

Assessable income includes all the income you earn during the financial year from various sources, such as:

1. Employment income
   
   • Salary and wages
   • Allowances
   • Bonuses and commissions
   • Employment termination payments
   • Paid parental leave
2. Business income
   
   • Net profit from business activities
   • Partnership income
   • Trust distributions
3. Investment income
   
   • Interest from bank accounts and investments
   • Dividends from shares (including franked dividends)
   • Rental income from property investments
   • Capital gains from the disposal of assets
   • Foreign investment income
4. Government payments
   
   • JobSeeker Payment
   • Age Pension
   • Disability Support Pension
   • Parenting Payment
   • Youth Allowance
5. Super income
   
   • Superannuation pension payments (for those over preservation age)
   • Lump sum super withdrawals (in certain circumstances)

Allowable deductions

Deductions are expenses directly related to earning your income that can be subtracted from your assessable income. Common deductions include:

1. Work-related expenses
   
   • Vehicle and travel expenses
   • Clothing, laundry, and dry-cleaning expenses (work-specific)
   • Home office expenses
   • Self-education expenses related to current employment
   • Tools and equipment
   • Union fees and professional subscriptions
2. Investment-related expenses
   
   • Interest on investment loans
   • Management fees
   • Property expenses (repairs, maintenance, council rates, insurance)
   • Depreciation on investment properties and assets
   • Accounting fees for managing investments
3. Business expenses
   
   • Operating expenses
   • Depreciation of business assets
   • Home-based business expenses
   • Superannuation contributions for employees
4. Other deductions
   
   • Charitable donations to registered organisations
   • Tax agent fees
   • Income protection insurance premiums
   • Certain personal superannuation contributions

Tax-free threshold

The first $18,200 of taxable income for Australian residents is tax-free (known as the tax-free threshold). This effectively means residents don’t pay income tax until their taxable income exceeds this amount.

Tax rates

Once it is determined, tax is calculated according to the progressive tax rate schedule. For Australian residents in the 2024-2025 financial year, the rates are:

Taxable Income	Tax Rate
$0 – $18,200	Nil
$18,201 – $45,000	19c for each $1 over $18,200
$45,001 – $120,000	$5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000	$29,467 plus 37c for each $1 over $120,000
$180,001 and over	$51,667 plus 45c for each $1 over $180,000

Note: These rates exclude the Medicare Levy (generally 2%) and any applicable Medicare Levy Surcharge.

Net tax payable

Your final tax liability is not determined solely by applying tax rates to your taxable income. The following items also affect your net tax payable:

1. Tax offsets (Rebates)
   
   • Low and Middle Income Tax Offset (LMITO)
   • Low Income Tax Offset (LITO)
   • Seniors and Pensioners Tax Offset (SAPTO)
   • Private Health Insurance Rebate
   • Franking credits on dividends
2. Medicare Levy
   
   • Generally 2%
   • Reduced or exempted for low-income earners
3. Medicare Levy Surcharge
   
   • Additional 1-1.5% for higher income earners without adequate private health insurance
4. HELP/HECS Debt Repayments
   
   • Compulsory repayments based on your income
5. Tax Credits
   
   • PAYG withholding amounts
   • Foreign income tax offsets

Special considerations

Non-assessable income

Some types of income are not included in your assessable income, such as:

• Certain government payments and benefits
• Some scholarships and grants
• Genuine gifts and inheritances
• Tax-free portion of superannuation pensions and lump sums
• GST collected (for businesses)

Tax losses

If your allowable deductions exceed your assessable income in a financial year, you incur a tax loss. This loss cannot be paid out as a refund but can generally be carried forward to offset future taxable income.

Foreign income

Australian residents for tax purposes are generally taxed on their worldwide income. However, foreign income tax offsets may be available for tax paid overseas to prevent double taxation.

Temporary residents

Temporary residents of Australia are generally only taxed on income derived from Australian sources and not on foreign income.

Frequently askes questions for taxable income

How is taxable income different from gross income?

Gross income refers to the total amount you earn before any deductions, while taxable income is the amount remaining after allowable deductions have been subtracted from your assessable income.

Can I reduce my taxable income?

Yes, you can reduce your taxable income by claiming all eligible deductions. Strategies include making tax-deductible charitable donations, claiming all eligible work-related expenses, salary packaging arrangements (where available), and making personal superannuation contributions.

What if I have multiple jobs?

Each employer will withhold tax based on the tax-free threshold, potentially resulting in under-withholding if you claim the threshold with more than one employer. You should consider only claiming the tax-free threshold with your highest-paying job to avoid a tax bill at the end of the year.

How do capital gains affect my taxable income?

Net capital gains are included in your taxable income. For assets held for more than 12 months, individuals can generally apply a 50% CGT discount, meaning only half of the net capital gain is included in taxable income.