Ordinary Income in Australia: 2025 Guide to Tax and Wealth

Ordinary income is a term that pops up every tax season, but what does it actually mean for Australians in 2025? Whether you’re a full-time employee, a freelancer, or a retiree drawing investment returns, ordinary income is at the heart of your tax bill and your overall wealth strategy. Let’s break down what counts as ordinary income, the latest ATO updates for 2025, and how you can make smarter financial decisions with this knowledge.

What Is Ordinary Income?

At its core, ordinary income is the money you earn from your main day-to-day activities—like your salary, wages, business profits, or income from property rentals. It’s distinct from capital gains, which arise from selling assets like shares or property. For tax purposes, the Australian Taxation Office (ATO) treats ordinary income and capital gains differently, so knowing which bucket your earnings fall into is crucial.

• Examples of ordinary income: Salary and wages, contractor payments, rental income, interest from bank accounts, business trading income.
• Not ordinary income: Profits from selling your family home, one-off windfalls, lottery winnings (unless part of a business), and most capital gains.

In 2025, the ATO continues to refine what counts as ordinary income, especially as side hustles and gig economy work become more common. For example, if you drive for Uber, your fares are ordinary income, while selling your old bike privately is not.

How Ordinary Income Is Taxed in 2025

Ordinary income is subject to Australia’s progressive income tax rates. The more you earn, the higher the marginal tax rate you’ll pay. For the 2024–2025 financial year, recent policy updates have adjusted the tax brackets, aiming to offer relief to middle-income earners and address bracket creep. Here are the main points:

• Tax-free threshold remains at $18,200.
• The 19% tax rate now applies up to $45,000 (previously $41,000).
• The 32.5% bracket has expanded to $135,000 (up from $120,000).
• Top marginal rate of 45% now starts at $190,000.

Let’s see how this plays out. If you earn $90,000 in salary and $10,000 in rental income, both are ordinary income and taxed together. You’ll report a total taxable income of $100,000 on your return. In contrast, a capital gain from selling shares is reported separately and may benefit from the 50% CGT discount if you held the shares for more than a year.

Maximising Your Ordinary Income (and Minimising Tax)

Understanding ordinary income isn’t just about compliance—it’s the first step to optimising your after-tax wealth. Here’s how Australians are adapting in 2025:

• Salary Sacrifice: Many employees are using salary packaging to direct part of their pre-tax income into superannuation, reducing assessable ordinary income and boosting retirement savings.
• Claiming Deductions: Ordinary income can be offset by work-related deductions—think home office expenses, tools, professional memberships, and travel costs. The ATO’s updated guidance in 2025 tightens rules around work-from-home deductions, so keep accurate records.
• Rental Property Strategies: Landlords are maximising deductions for interest, repairs, and depreciation, but must report all rental income as ordinary income. The ATO’s 2025 crackdown on short-term rental platforms means more transparency and data-matching, so full disclosure is essential.
• Side Hustles and Gig Economy: The rise of digital platforms means that even modest earnings from freelancing, tutoring, or ridesharing are tracked as ordinary income. The ATO’s new ‘Income Pre-fill’ tool now automatically imports payments reported by major gig economy platforms into your tax return.

One real-world example: Lisa, a Melbourne-based teacher, earned $70,000 from her job and $12,000 from Airbnb rentals in 2025. Both streams are ordinary income. By claiming eligible deductions for her rental property and salary-sacrificing $5,000 into super, she managed to reduce her taxable income and her overall tax liability.

Key Takeaways for 2025

• Ordinary income includes all your regular earnings, from salary to side hustles and rent.
• Tax rates and thresholds have changed for 2025—check where you sit in the new brackets.
• ATO’s data-matching and pre-fill tools are making it harder to under-report ordinary income, especially for gig economy and rental earnings.
• Smart financial strategies—like salary sacrifice and maximising deductions—can help you keep more of your ordinary income.