Modified Adjusted Gross Income (MAGI) Explained for Australians in 2025

Modified Adjusted Gross Income (MAGI) isn’t just a term thrown around at tax time—it’s a crucial factor influencing how much you pay, what benefits you’re eligible for, and how you plan your investments. As financial rules continue to evolve in 2025, understanding MAGI is more important than ever for Australians keen to optimise their wealth and avoid costly surprises.

What Is MAGI and Why Does It Matter?

MAGI stands for Modified Adjusted Gross Income. In the Australian context, this figure is used by the Australian Taxation Office (ATO) and other government agencies to determine your eligibility for various tax offsets, superannuation contribution caps, and government benefits. While the concept originates in the US tax system, its Australian equivalent is increasingly relevant as our financial system adopts similar means testing and income thresholds.

• Superannuation: MAGI influences eligibility for government co-contributions and the ability to make certain types of super contributions.
• Private Health Insurance: Your MAGI can affect your entitlement to the Private Health Insurance Rebate and whether you’re liable for the Medicare Levy Surcharge.
• Family Tax Benefits and Other Welfare: Many government benefits and offsets use MAGI as a basis for means testing.

For 2025, the ATO has updated several thresholds for these benefits, making it vital to understand how your income is calculated and what counts towards your MAGI.

How Is MAGI Calculated in Australia?

The calculation of MAGI starts with your Adjusted Taxable Income (ATI), then adds back certain deductions and exempt income. While the specific add-backs can vary depending on the benefit or tax offset, typical inclusions for 2025 are:

• Reportable superannuation contributions
• Net investment losses (such as negative gearing on property or shares)
• Tax-free government pensions or benefits
• Foreign income (including tax-exempt amounts)
• Fringe benefits (grossed-up value)

Suppose you earn $90,000 in salary, have $5,000 in reportable employer super contributions, $3,000 in net investment losses, and receive $2,000 in tax-free government benefits. Your MAGI would be:

• Base salary: $90,000
• + Super contributions: $5,000
• + Net investment losses: $3,000
• + Tax-free benefits: $2,000
• = Total MAGI: $100,000

This figure could then be used to determine your eligibility for a government co-contribution on your super or whether you’ll pay extra for your private health insurance.

2025 Policy Updates: What’s Changed?

With inflation and wage growth influencing thresholds, 2025 brings several important updates for MAGI calculations in Australia:

• Superannuation Co-Contribution: The lower income threshold for the government co-contribution scheme has increased to $44,500, and the upper threshold is now $59,000. Your eligibility is based on MAGI, not just taxable income.
• Private Health Insurance Rebate: The income thresholds for the rebate and Medicare Levy Surcharge have been indexed, so singles earning over $97,000 or couples over $194,000 (MAGI) will see reduced rebates and higher surcharges.
• Family Tax Benefit: MAGI is again the basis for means testing, with updated thresholds affecting eligibility and payment rates.

These updates mean that if you’ve taken on extra investment income, salary sacrifice arrangements, or received new benefits, your MAGI could push you into a different bracket—even if your base salary hasn’t changed.

Smart Strategies to Optimise Your MAGI

Because MAGI affects so many financial levers, it’s worth considering how your actions throughout the year impact your final figure. Here are some practical strategies for 2025:

• Review Salary Sacrifice Arrangements: Employer super contributions count towards MAGI. Adjust your salary packaging if you’re close to a threshold.
• Manage Investment Losses: Negative gearing is added back to your income for MAGI. Consider the timing of property or share investments to avoid unintentional bracket creep.
• Track Fringe Benefits: Fringe benefits like a company car or novated lease are part of your MAGI calculation. Factor these into your planning before taking up a new benefit.
• Understand Foreign Income Rules: With more Australians working remotely for global firms, ensure you report all overseas earnings correctly for MAGI purposes.

Small adjustments can mean the difference between qualifying for a co-contribution or paying a surcharge, so proactive planning is key.

The Bottom Line

Modified Adjusted Gross Income is more than a technicality—it’s a central pillar in Australia’s evolving financial and tax landscape for 2025. By understanding how your income is calculated and what policy changes mean for your situation, you can make smarter decisions about superannuation, health insurance, and investment strategies. As thresholds and rules change, staying informed will help you keep more of your money working for you.