Income tax was first imposed in Australia by the States, commencing with South Australia in 1884, New South Wales and Victoria in 1895, Queensland and Tasmania in 1902 and Western Australia in 1907. The first federal income tax was levied by the Commonwealth in 1916 to finance Australia's role in World War I.

The introduction of the federal tax resulted in different tax levies by at least two authorities (State and federal) and, as between the States, at different rates. Accordingly, after 1916 the States and the Commonwealth endeavoured to provide a uniform tax system. In 1923, to minimise the duplication of administrative facilities, the Commonwealth and all the States except Western Australia agreed that the federal income tax was to be collected by State officials. Simultaneously, certain Commonwealth officials were transferred from the Commonwealth Government to the respective State departments and a joint form for State and federal income tax returns was adopted.

The object of the uniform tax system was achieved to a major degree with the enactment of the Commonwealth Income Tax Assessment Act 1936 . The 1936 Act (ITAA36), which came into effect at the beginning of June 1936, consolidated and amended the Commonwealth legislation in respect of the assessment and collection of income tax. ITAA36 is now gradually being replaced by the Income Tax Assessment Act 1997 (ITAA97).

The Australian Taxation Office administers the income tax laws.

Income tax in Australia is undergoing a significant reform.