Bracket & Offset

Worked Examples and Checklists

How to calculate your Australian income tax step by step (with a worked example)

Go from gross income to taxable income, tax, offsets, Medicare levy and HELP repayment, then compare with PAYG withheld to see whether you get a refund or owe tax.

Updated · 4 min read

How to calculate your Australian income tax step by step (with a worked example)

To calculate your Australian income tax, add up your assessable income, subtract allowable deductions to get taxable income, apply the resident tax rates for the year, subtract tax offsets such as the low income tax offset, add the Medicare levy (and surcharge if it applies) and any compulsory HELP repayment, then compare the total with the PAYG tax withheld shown on your income statement. A positive difference is what you owe; a negative one is your refund. The worked example below does this for a 2025–26 return, with every line shown.

This is the pillar guide for the worked examples section. Each step links to a more detailed example. The figures are illustrative; they show the method, not your result, and this is general information rather than tax advice.

Step 1: Add up assessable income

Include everything that is assessable for the year (1 July to 30 June):

  • salary, wages, allowances and lump sums from your income statement in myGov;
  • interest from bank accounts (your share of joint accounts);
  • dividends, including franking credits (grossed up), and managed fund or ETF distributions;
  • rental income;
  • net capital gains after losses and discounts (see the shares example);
  • foreign income if you are a resident, and income from a side business.

Pre-filling in myTax imports much of this, usually by late July or August. Check it against your own records.

Step 2: Subtract deductions

Common deductions for individuals:

  • work-related expenses you paid and were not reimbursed for, with records;
  • the working-from-home fixed rate of 70c per hour (see fixed rate vs actual cost);
  • costs of managing your tax affairs, such as tax agent fees;
  • gifts of $2 or more to deductible gift recipients;
  • personal super contributions after an acknowledged notice of intent;
  • a net rental loss (see the negative gearing example).

Income minus deductions is taxable income. It cannot go below zero for this calculation; some losses are carried forward instead.

Step 3: Apply the tax rates

Use the table for the year you are lodging. For a 2025–26 return:

Taxable incomeTax
$0 – $18,200Nil
$18,201 – $45,00016c per $1 over $18,200
$45,001 – $135,000$4,288 + 30c per $1 over $45,000
$135,001 – $190,000$31,288 + 37c per $1 over $135,000
$190,001 and over$51,638 + 45c per $1 over $190,000

The 2026–27 table (15% second bracket) is in the income tax rates guide.

Step 4: Subtract offsets

The most common is the low income tax offset for incomes under $66,667. Franking credits are a refundable offset: they reduce tax and any excess is refunded. Others include the private health insurance rebate (if not taken as a premium reduction), the seniors and pensioners tax offset and the spouse contribution offset.

Step 5: Add the Medicare levy, surcharge and HELP

  • Medicare levy: 2% of taxable income, reduced for low incomes.
  • Medicare levy surcharge: only if income for MLS purposes is above the threshold and you lack appropriate hospital cover (details).
  • HELP repayment: on repayment income above the threshold ($67,000 for 2025–26), see HELP thresholds.

Step 6: Compare with tax withheld

Your income statement shows PAYG withholding for each employer. Add any PAYG instalments you paid. Total liability minus credits gives your refund or debt.

Worked example: 2025–26 return

Illustrative employee, resident all year, with a HELP debt and no private hospital cover needed (below the MLS threshold).

LineAmount
Salary (income statement)$92,000
Bank interest$800
Assessable income$92,800
Union fees and a work course (records kept)−$1,200
Working from home: 600 hours × $0.70−$420
Taxable income$91,180
Tax: $4,288 + 30% × ($91,180 − $45,000) = $4,288 + $13,854$18,142.00
LITO (income above $66,667)$0
Medicare levy: 2% × $91,180$1,823.60
HELP: 15% × ($91,180 − $67,000)$3,627.00
Total liability$23,592.60
PAYG withheld (illustrative)$23,100.00
Amount payable$492.60

What changes the result most:

  • Each extra $100 of deduction saves about $32 (30% + 2%). HELP is calculated on repayment income, which here equals taxable income, so deductions reduce it too, saving another 15c per dollar. That is not the case for salary sacrifice or rental losses, which are added back.
  • If the same person had $91,180 of taxable income in 2026–27, the tax would be $4,020 + $13,854 = $17,874, which is $268 less.
  • If the employer had not been told about the HELP debt, withholding would have been lower and the bill much larger.

Where to go next

The other worked examples in this section test specific decisions:

Use the take-home pay calculator to repeat the core steps with your numbers.

FAQ

Why is my refund smaller than last year even though I earn the same?

Common reasons: a HELP repayment started, an offset ended, deductions fell, you had two jobs and both applied the tax-free threshold, or bank interest and dividends increased.

Do I include franking credits in income?

Yes. Dividends are grossed up by the franking credit, and the credit is then offset against tax. Any excess franking credit is refunded to individuals.

Is PAYG withholding my final tax?

No. Withholding is an estimate; your assessment after lodging decides the final amount.

Can my taxable income be negative?

A loss can reduce taxable income to nil, and in some cases a tax loss is carried forward. Net capital losses are only used against capital gains.

Sources

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