Marginal Tax Rate
The rate of tax applied to each additional dollar of income — determined by the tax bracket your top dollar falls into.
Your marginal tax rate is the rate of tax you pay on the last (highest) dollar of your taxable income. It corresponds to the tax bracket your income falls into. For example, if your taxable income is $80,000 in 2026–27, your marginal rate is 30% — meaning any additional dollar earned would be taxed at 30 cents (plus 2 cents Medicare levy).
The marginal rate is crucial for financial planning decisions such as salary sacrifice, tax-deductible contributions, and investment choices. When you salary sacrifice $1,000 into super, you avoid tax at your marginal rate (e.g., 30%) and instead pay only 15% contributions tax inside super — a net saving of 15 cents per dollar. Similarly, a tax deduction worth $1,000 reduces your tax by $1,000 times your marginal rate.
Note that your marginal rate is different from your effective (average) tax rate. Your effective rate is your total tax divided by your total income — it is always lower than your marginal rate because of the progressive bracket structure. For someone on $80,000, the effective rate is about 20.2% (including Medicare levy), even though the marginal rate is 30%.
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Tax Brackets
The income ranges that determine the rate of tax applied to each portion of your taxable income.
Effective Tax Rate
Your total tax as a percentage of your total income — the actual overall rate you pay after all brackets, offsets, and levies.
Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.
Salary Sacrifice
An arrangement where you direct part of your pre-tax salary into super (or other benefits), reducing your taxable income.
Taxable Income
Your assessable income minus allowable deductions — the figure used to calculate your income tax.