Intro There was heated debate and multiple
revisions to the stage three tax cut. Now that the dust has settled and the final version is law,
it is time to turn the page. In this video I'm
going to explain the new Australian income tax rate for financial year 2025. How you can easily calculate your tax. Practical ways to minimize tax legally. And how to lodge a simple tax return. Let's dive in. Tax Brackets There are three main components
in your Australian tax obligation. Income tax. Medicare levy. Other taxes and levies
which may or may not apply to you. First things first, Australia has
what's called a progressive tax system. Income is divided into segments
known as tax brackets. Each bracket corresponds
to a specific tax rate. As you move up through the income
brackets, the tax rate increases. This means that the more you earn,
the higher as a percentage of your income
that goes to taxes. Picture
your income as a multi-layered cake. For each layer,
the ATO slices off a different portion. The bottom layer. The first 18,200, is not taxed at all. You get to keep the whole thing
As we move up to the next layer – the portion of your income
that is between $18,201 and $45,000 The ATO takes away 16% of it. As for the third layer of your cake,
the portion above $45,000 until $135,000, the ATO takes away a bigger slice
which is 30%. And we move up to the fourth
layer of your cake, the portion of your income above $135,000
until $190,000, the ATO takes away an even bigger slice
which is 37%. Finally, the top layer of your cake,
anything above $190,000, the ATO takes away
almost half which is 45%. The higher the layer of the cake,
the larger the slice that goes to the ATO. Remember the higher tax rate
only applies to income in a specific layer of the cake
or a specific tax bracket. For example,
our friend John increase his income from 135,000 to 145,000 and moved from the third
tax bracket to the fourth bracket. Only the income that falls
into the fourth bracket, which is 10,000, is taxed at the higher rate,
not his entire income This brings us to the concept
of marginal tax rate. essentially this is a rate at which
any extra dollar you earn is taxed. It's typically higher than your average
tax rate, which is calculated by dividing your total tax
by your total taxable income. The tax rates in FY 2025
represent a reduction from the previous financial year. As you can see there are both reductions
in tax rates and lifts of the tax brackets, meaning most Australian will pay
less tax in FY2025 than FY2024. Medicare Levy in addition to income tax, Australians also pay Medicare levy,
which helps fund the public health system. This levy is currently 2%
of your taxable income. in our previous example,
on top of the income tax, John will pay 2900 in Medicare levy. Other taxes and levies - Medicare Levy Surcharge If you do not have a proper level
of private hospital cover and you earn above a certain income,
you may have to pay the Medicare levy surcharge,
which is on top of the Medicare levy, depending on your family circumstances
and income. Different rate applies. Medicare levy surcharge can usually be
avoided by taking out a private hospital. Cover for yourself, your spouse,
and all of your dependents In FY 25, Other taxes and levies - HELP debt repayment if you have outstanding HELP debt and earn above $54,435, which is the compulsory repayment
threshold, You may have your HELP repayments
taken out through the taxation system. The amount you repay each year
is a percentage of your repayment income. The percentage increases
as your income increases. So the more you earn, the higher
your repayment will be. Now one of my favorite tax
calculator is tax calc. It's free and super easy to use. All you need to do
is plugging in your taxable income. But wait what exactly is taxable income. Taxable income and common deductions Taxable income equals your assessable
income minus any deductions. Assessable income is a total of all
your income sources, including salary. Interest from savings. Dividends
or distributions from investments. Rental income and so on. deductions are expenses
you can subtract from your assessable income, reducing the amount
you pay tax on. If you spend money on things directly
related to earning your income, you can deduct those expenses. Common deductions
include work related expenses, investment related expenses,
personal deductible, super contributions, income protection
premiums, charitable donations, and so on. To minimize your personal income tax,
you will want to maximize your deductions. This video will give you more insights
and details. Tax calculator Now we have a good understanding of the basics of the Australian
personal income tax system. It's time to do some real calculations
to see how all this works in practice. Let's head back to tax calc. by default
it's set for Australia residents. The income you enter doesn't
include your super. Also it assumes you don't have any help
debt and you are not eligible for SAPTO. If you are curious about
whether these apply to you, just click here to learn more. Remember our friend
John who received a pay rise and now earns 145,000? But wait, he's got deductions worth 5000. So what's his taxable income.
That's right. It's 140,000. let's put this figure into tax calc. And voila! We can instantly see how much tax
including Medicare levy John needs to pay. If John has outstanding HELP debt,
he will tick this box, and the result
will have the HELP repayments included. PAYG system Now let's keep things
simple and say John doesn't have any help debt
and his only income is his salary. What happens here
is that John's employer deducts tax from his salary
before he even sees it. this is known as pay
as you go or PAYG tax. His employer doesn't know
about his deductions or other income. So they calculate the pay as you go
tax based on his salary. this figure you see on the tax calculator is often
the same as the pay as you go tax. each payslip
John gets will show his salary, the tax that's been paid on his behalf
and what he actually takes home. Fast forward
to the end of the financial year. It's time for John to do his tax return. he will enter his income details. And importantly, those deductions
we talk about And guess what? John's
employer has paid more tax on his behalf than he actually owes,
and he will get a tax refund. That's a nice bonus for being diligent
with your deductions. Keep deductions organised speaking of being diligent
with your deductions, easiest way is to download the ATO app,
which allow you to take photos of receipts and documents during the year
and save them directly onto the app. When it comes to tax time, you can import this information
directly into your tax return. Lodge a tax return If your financial affairs
are pretty straightforward, you might want to consider
lodging your tax return by yourself. The deadline of the DIY route is 31st
of October the following financial year. Technically, you can start lodge
your tax return from 1st of July, but it may be easier to wait a few weeks. Because the ATO has data feed from
employers and many financial institutions. after waiting for a few weeks,
you'll find that a lot of the information
is already pre-filled in the system. This saves you the hassle of collecting
all your financial information and entering it manually. If you decide to go the DIY route,
you can lodge your tax returns through my govt ATO. It's a super easy and very secure
and the best part? Usually you get your refund back within
just two weeks if your financial situation is a bit more complex or you just want
the guidance of a professional, you can always hire accountant
to do your tax return for you. And the cost of managing
your tax is tax deductible. Congratulations. Now you have graduated
from being a tax beginner. But did you know the headline tax free
threshold of 18,200 can be a trap? Many people mistakenly aim
to reduce their taxable income to 18,200 whenever they have strategies
available to do so. Let me tell you
18,200 is not the magic number. And you can have more taxable income
and still pay zero tax. Watch this video to learn more.