Tax Tips For Employees

Tax time can be overwhelming, but it doesn’t have to be. With the right knowledge and a bit of planning, Australian employees can significantly reduce their tax burden and maximise their return. Whether you’re working from home, claiming motor vehicle expenses, or contributing to your superannuation, there are numerous opportunities to save and make the most of your hard-earned income. In this guide, we’ll walk you through essential tax tips, the latest changes in tax laws, and clever strategies to ensure you’re not leaving money on the table. From understanding your tax-free threshold to avoiding the ATO’s audit red flags, let’s dive into the world of tax-saving techniques and make sure you’re fully equipped to get the best outcome come tax time.

What You Need to Know About Your Tax File Number (TFN)

When you start a new job in Australia, the first thing you’ll need to do is provide your Tax File Number (TFN). You’ve probably heard it mentioned before, but let me tell you—it’s more important than you might think.

Think of your TFN like the key to your tax identity. Without it, your employer will be forced to withhold tax at the highest possible rate. No one wants that, right? Let me share a quick story. A friend of mine, Sarah, got her first full-time job right out of uni. She thought she’d be fine without a TFN for the first week—after all, she was still getting the hang of the job. But when her first paycheck arrived, she was shocked to find that almost half had been deducted for taxes. That was because, without a TFN, she had been taxed at the highest rate possible. It was a hard lesson, but one that I’m sure she won’t forget.

Tax-Free Threshold: What Does It Mean for You?

As an Australian resident, you’re entitled to a tax-free threshold of AUD 18,200. This means that you don’t pay any tax on the first AUD 18,200 you earn in a year. So, if you’re only working part-time or casually, this could be a big help in boosting your take-home pay.

Here’s the catch: If you have multiple jobs, you should only claim the tax-free threshold for the job that pays the most. This strategy will help prevent any nasty surprises at the end of the financial year. If you end up claiming the threshold for multiple jobs, the ATO (Australian Taxation Office) may not be able to match the tax deductions correctly, and you could end up with a tax debt. It’s all about keeping it simple and making sure you don’t over-claim.

Navigating the 2025-2026 Income Tax Rates and Brackets

Now that you’ve got the basics covered, let’s take a deep dive into the 2025–2026 income tax rates. Australia’s tax system is progressive, meaning the more you earn, the higher your tax rate. Here’s a breakdown of what you can expect for the upcoming financial year:

• 0 – 18,200 AUD: 0% tax
• 18,201 AUD – 45,000 AUD: 16% of the excess over 18,200 AUD
• 45,001 AUD – 135,000 AUD: 4,288 AUD + 30% of the excess over 45,000 AUD
• 135,001 AUD – 190,000 AUD: 31,288 AUD + 37% of the excess over 135,000 AUD
• 190,001 AUD+: 51,638 AUD + 45% of the excess over 190,000 AUD

Here’s a personal tip—don’t stress if you’re right at the edge of a tax bracket. You won’t suddenly get taxed at the higher rate for all your income. For example, if you earn 45,500 AUD, only the 500 AUD above the 45,000 AUD threshold will be taxed at the 30% rate.

But there’s some good news coming down the line. Starting 1 July 2026, the 16% tax rate for the 18,201 AUD – 45,000 AUD range will drop to 15%. It’s not a huge drop, but over time, it will add up to a few hundred dollars in savings. For example, if you’re earning just over 45,000 AUD, this tax rate cut could save you 268 AUD per year.

By 2027, the government plans to drop that 16% rate to 14%, so the future is looking a bit brighter for mid-income earners.

How the Medicare Levy and Surcharge Impact Your Tax

In addition to income tax, Australians pay a Medicare Levy of 2% of taxable income. It’s one of the ways we fund our universal healthcare system, which is a great benefit, especially if you ever need medical care.

The Medicare Levy Surcharge (MLS) is an additional tax for higher-income earners who don’t have private health insurance. If your income is over 101,001 AUD for singles in 2025-26 and you don’t have private hospital cover, you could face an additional 1.5% surcharge on your income.

But here’s an important thing to keep in mind: If you do have private health insurance, the surcharge doesn’t apply. It’s another good reason to consider private health insurance if you’re in the higher income brackets. In fact, the Medicare Levy Surcharge might just offset the cost of your health cover, especially if you’re in that 100,000+ income range.

Maximising Work-Related Deductions for Tax Savings

A. Working from Home (WFH) Deductions

One of the most significant changes over the past few years has been the rise of working from home, and with it comes the opportunity to claim work-from-home (WFH) deductions. If you’re working from home—whether it’s a few days a week or full-time—you may be able to claim a portion of your home office expenses. But there are specific rules to keep in mind.

For the 2024-25 and 2025-26 financial years, you can choose between two methods for claiming your WFH expenses:

• Fixed Rate Method: This method allows you to claim 70 cents per hour worked from home. This flat rate covers electricity, internet, phone, and stationery. You don’t need to have a dedicated office space, but you must keep a record of all hours worked. A simple diary or timesheet will work. Remember, a four-week representative log is no longer enough under this method. You’ll need to track your hours more accurately, so it’s essential to be diligent here.
• Actual Cost Method: If you choose this method, you can claim the actual costs of your home office setup. This includes your electricity, internet, phone bills, and even your furniture. However, you’ll need to keep detailed receipts and calculate the percentage of usage directly related to your work. If you’re in a shared space at home, it’s important to allocate the appropriate portion of expenses based on how much time you actually spend working.

Here’s a real example from a family friend, Jason. He works in digital marketing and has been working from home for the past year. By tracking his hours and using the Fixed Rate Method, he was able to claim more than 600 AUD last year on his tax return just by working from home three days a week. Not too shabby!

B. Motor Vehicle Expenses

If you use your car for work-related purposes—whether it’s for meetings, site visits, or delivering goods—you may be able to claim a deduction. However, the rules around motor vehicle expenses can be a bit tricky.

To qualify for any deduction, your car must carry fewer than nine passengers and weigh less than one tonne. The ATO has two methods for claiming car expenses:

• Cents per Kilometre: You can claim 88 cents per kilometre for work-related travel up to 5,000 km per year. This rate covers everything—fuel, maintenance, insurance, registration, and even depreciation. You don’t need a logbook for this method, but you do need to keep a record of the distance you travel.
• Logbook Method: This method requires a bit more work, but it can result in a larger deduction. You need to keep a 12-week logbook that shows your business-related travel. You can then claim the actual business-use percentage of all your car-related expenses—fuel, insurance, maintenance, registration, etc. The great thing about the logbook method is that once you’ve done the logbook for 12 weeks, it remains valid for up to five years, so you don’t have to track every single trip each year.

For example, if your logbook shows that 60% of your car’s use is for work, you can claim 60% of all car-related expenses. This method is particularly useful if you use your car for significant business travel, but remember, commuting between home and work doesn’t count unless you’re carrying heavy tools that can’t be stored at work.

C. Other Key Deductions

• Self-Education: If you’ve spent money on education or training that directly improves the skills you use in your current job, those costs can be deductible. For example, let’s say you work in IT, and you decide to take a course on cloud computing to keep up with industry trends. Since this improves your skills for your current role, it’s a valid deduction. However, if you were pursuing a qualification to switch careers—say, going from IT to marketing—that wouldn’t be deductible.
• Uniforms and Laundry: If your job requires you to wear a compulsory uniform, protective gear, or a specific brand (like a police officer or a nurse), you can claim the cost of the uniform. You can also claim up to 150 AUD for laundry costs without needing receipts, which is a great little perk.
• Mobile Phone & Internet: If you’re using your phone and internet for work, you can claim a portion of the costs. For example, if your mobile phone bill is 100 AUD per month, and you use it for work about 60% of the time, you can claim 60% of 100 AUD, or 60 AUD. Keep in mind, if you’re already using the Fixed Rate Method for WFH deductions, you can’t claim mobile and internet expenses separately.

Record-Keeping and the 300 AUD Rule

The ATO is pretty generous when it comes to work-related claims under 300 AUD. If your total claim for work-related expenses is 300 AUD or less, you don’t need to provide receipts. However, there’s a catch—you must be able to explain how you arrived at your claim. Think of it like making a meal with whatever ingredients you’ve got in the fridge. You don’t need a recipe, but you do need to know what went into the dish and why it makes sense.

But here’s the thing: If your total claims exceed 300 AUD, you’ll need to provide receipts for the entire amount, not just the portion above 300 AUD. It’s important to keep all receipts and track your expenses, even if you think you’re under that 300 AUD threshold.

For example, Sarah (from earlier) made sure to keep all her receipts for the office supplies she used while working from home. Even though the total was under 300 AUD, she was able to explain how each purchase was related to her work, ensuring her claims were accepted without a hitch.

Salary Sacrifice and Superannuation Contributions

Salary sacrificing into your superannuation is a smart way to reduce your taxable income while also boosting your retirement savings. Essentially, it’s an agreement between you and your employer where part of your pre-tax salary is contributed directly into your super fund.

The great thing about salary sacrificing is that the money goes into your superannuation fund, which is taxed at just 15%, much lower than your regular income tax rate. For example, if you earn 80,000 AUD a year, and you sacrifice 5,000 AUD into your super, you reduce your taxable income to 75,000 AUD, saving you money on taxes now while building your retirement fund.

As of 2025-26, the concessional contribution cap (the amount you can contribute before being taxed at the 15% super rate) is 30,000 AUD. But don’t worry about going over the cap—if you do, the excess contributions are taxed at a higher rate of 47%, which can be a nasty surprise. So, it’s important to keep track of how much you’re contributing each year.

Catch-Up Contributions for Superannuation

If your super balance is under 500,000 AUD, you can take advantage of catch-up contributions. This means you can carry forward unused portions of your concessional cap from previous years, up to five years. For example, if you didn’t use your full cap in 2024-25 (say you contributed 15,000 AUD but the cap was 30,000 AUD), you can carry forward the unused 15,000 AUD into the next year, allowing you to contribute 45,000 AUD in 2025-26. This can be a great way to top up your super when you have extra income or if you missed making full contributions in past years.

Novated Leases: A Tax-Friendly Option for Cars

Another popular salary sacrifice option is a novated lease for a car. Under this arrangement, you can sacrifice part of your salary to lease a car, and your employer makes the lease payments directly from your pre-tax income. This reduces your taxable income, giving you a tax benefit.

In fact, from 1 July 2022, certain zero-emission or low-emission vehicles are exempt from Fringe Benefits Tax (FBT), which makes them even more attractive for salary sacrifice arrangements. If you’re planning to lease a hybrid or electric car, this could be an extremely tax-effective way to get a new vehicle while also reducing your tax burden. For example, if you’re considering a Toyota Prius (a hybrid), the savings from zero FBT could be significant.

Redundancy and HELP Debt Changes

Redundancy can be a difficult time, but there’s some good news when it comes to the tax treatment of redundancy payments. Genuine redundancy payments are tax-free up to a limit based on your years of service. So, if you’ve worked with your employer for several years, you could receive a tax-free payout of up to 10,000 AUD for each year you’ve worked (depending on your age and length of service). Any amount over this tax-free threshold is taxed as an Employment Termination Payment (ETP).

Let’s say you’ve worked for a company for 10 years and received a redundancy payout of 100,000 AUD. The first 100,000 AUD could be tax-free (depending on your age), but any amount beyond that would be taxed at the ETP rates, which can range from 17% to 47%. Make sure to check the ATO’s guidelines or speak to a tax advisor about your specific circumstances.

Upcoming Changes to HELP Debt Repayments

As of June 2025, there’s a significant change to the way HELP debts are repaid. The marginal repayment system will be introduced, meaning that the amount you repay each year will be linked directly to your income. In addition, the government has proposed a 20% reduction in outstanding student loan debts by 2025, which will help ease the financial burden for many Australians.

For example, if you have 50,000 AUD in HELP debt, a 20% reduction could mean a saving of 10,000 AUD. While this won’t completely erase the debt, it’s certainly a step in the right direction.

Audit Prevention: What the ATO is Watching

The Australian Taxation Office (ATO) is cracking down on over-inflated work-related claims. In fact, one of their key strategies is the “pub test”—a simple rule that helps them spot suspicious claims. Essentially, if you were to tell someone at the pub about your tax claims, would they believe it? If it sounds too good to be true, it probably is.

In 2025, the ATO will continue to focus on ensuring that tax deductions are reasonable, and if they suspect fraudulent claims (such as inflating travel expenses or overstating home office claims), they won’t hesitate to investigate further. This could lead to audits or penalties, so it’s crucial to only claim what you can justify and keep clear records of everything.

If you’re unsure about a deduction, it’s always best to err on the side of caution. Keep your claims realistic, based on actual expenses, and make sure you can back up every deduction with receipts or clear explanations.

To make the most of the 2025-2026 tax year, start by reviewing your income and potential deductions. You can salary sacrifice into super, claim work-related deductions, and take advantage of the tax-free threshold to keep your taxable income as low as possible. Be sure to track all work-related expenses, especially if you’re working from home or using your car for business purposes. The more detailed and organised your records, the better you’ll be able to maximise your tax return.