Tax and Pay Glossary
The terms that show up on payslips, income statements and instalment notices, defined in one or two sentences each.
Taxable income
Assessable income minus allowable deductions. It is the figure the tax brackets apply to, not your gross salary. Salary packaging and deductions lower it; bank interest and side income raise it.
Gross pay vs net pay
Gross pay is the wage before anything comes out. Net pay, or take-home pay, is what lands in the bank after PAYG withholding and any salary sacrifice. Super is paid on top of gross, not out of it.
Marginal tax rate
The rate on your next dollar of income. A resident earning $80,000 in 2026-27 has a 30% marginal rate: earn one more dollar and 30c of it goes to tax, plus the Medicare levy.
Effective tax rate
Total tax divided by total income. Always lower than the marginal rate, because the tax-free threshold and lower brackets drag the average down. On $80,000 the 2026-27 effective rate is about 20%.
Tax-free threshold
The first $18,200 a resident earns each year tax free. Claim it with one employer only, through the TFN declaration. Claiming it twice is the most common cause of a surprise tax bill.
Low income tax offset (LITO)
An automatic offset of up to $700 for taxable incomes under $66,667. It reduces tax payable, not taxable income, and phases out as income rises. Nothing to claim: the ATO applies it at assessment.
Medicare levy
A 2% levy on taxable income that funds the public health system, on top of income tax. Low-income earners pay a reduced levy or none, and some categories are exempt.
Instalment income
The income base for PAYG instalments: business income, rent, interest, dividends and trust distributions, GST-exclusive. Salary under withholding and capital gains are not included.
Notional tax
The tax the ATO estimates on your instalment income, based on your last lodged return uplifted for growth. It sets the instalment amount on your quarterly notice.
Adjusted taxable income (ATI)
Taxable income plus reportable fringe benefits, reportable super contributions, net investment losses and certain foreign income. Used for income tests: HELP repayments, Medicare levy surcharge and family benefits.
Reportable fringe benefits
The grossed-up value of salary-packaged benefits shown on your income statement. Not taxed directly to you, but counted in income tests including HELP repayment income.
Withholding declaration
The form that changes your withholding settings with an existing employer: claiming or dropping the tax-free threshold, declaring a HELP debt, or claiming residency changes mid-year.
See how these numbers interact on your own salary with the PAYG calculator, or check the current 2026-27 tax brackets.