Taxable Income
Your assessable income minus allowable deductions — the figure used to calculate your income tax.
Taxable income is the amount of income on which your tax is calculated. It equals your assessable income (all income from employment, investments, business, and other sources) minus any allowable deductions (work-related expenses, investment expenses, donations, etc.). Tax is then calculated on this net figure using the progressive tax brackets.
Assessable income includes salary and wages, interest, dividends (including franking credits grossed-up), rental income, capital gains, business income, government payments, and foreign income. It does not include GST collected, exempt income (such as some government pensions), or non-assessable non-exempt income (such as the tax-free component of super benefits received after age 60).
Reducing your taxable income through legitimate deductions is the primary way individuals lower their tax bill. Common strategies include claiming work-related expenses, making tax-deductible super contributions (salary sacrifice or personal deductible contributions), and prepaying expenses like income protection insurance premiums. The ATO publishes occupation-specific guides to help you understand what deductions are available for your type of work.
How it works
Taxable income is the figure your income tax is actually calculated on — it's your assessable income, everything from wages to investments to business earnings, minus any allowable deductions you're entitled to claim. It is not the same as your gross salary or your take-home pay; it's a net figure that only exists after deductions have been subtracted, which is why it's always equal to or less than your assessable income.
You see taxable income spelled out explicitly on your Notice of Assessment once your return has been processed — it's the single number the tax brackets, offsets, and Medicare levy are then applied to. It's also the figure many other calculations key off, from HELP repayment thresholds to income tests for family payments, which is part of why legitimately reducing your taxable income through deductions or deductible super contributions can have knock-on effects beyond just your tax bill.
A common confusion is treating gross income and taxable income as interchangeable — they're not, and the gap between them is exactly the size of your deductions. Not every dollar you receive counts towards assessable income in the first place either: exempt income and non-assessable non-exempt income sit outside the calculation entirely, so taxable income can end up meaningfully lower than what actually landed in your bank account over the year.
Example: from assessable income to taxable income
Suppose your assessable income for the year totals $75,000, combining your salary, some bank interest, and dividend income. During the year you also incurred $3,500 in allowable deductions — work-related expenses, a small home office claim, and a charitable donation to a registered deductible-gift-recipient charity.
Your taxable income is your assessable income minus those deductions: $75,000 minus $3,500 equals $71,500. That $71,500 figure, not the original $75,000, is what actually gets run through the tax brackets to work out your income tax for the year.
Calculate it yourself
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Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.
Assessable Income
All income you must report in your tax return, including salary, interest, dividends, rental income, and capital gains.
Tax Brackets
The income ranges that determine the rate of tax applied to each portion of your taxable income.
Work From Home Deductions
Tax deductions for expenses incurred when working from home, claimable using the fixed rate method or actual cost method.
Salary Sacrifice
An arrangement where you direct part of your pre-tax salary into super (or other benefits), reducing your taxable income.