If you are looking to move and work in Australia, it is beneficial to get your head around income tax before you arrive. Income tax in Australia is a government tax on all earned income and is an essential source of revenue for government programs. Broadly, Australia levies a tax on three sources of income for individual taxpayers: personal earnings (for example, salary and wages), business income, and capital gains, which include the sale of real estate.
The financial year
The Australian fiscal year runs from July 1 to June 30, so income within that period is taxed each financial year, with most Australians filing taxes between July and October each year. Income received by individuals is taxed yearly, and the rates are calculated based on income brackets. You can see the current individual income tax rates in the government's page.
Tax file number (TFN) and Australian business number (ABN)
As with many other countries, income taxes are withheld from wages and salaries in Australia. A nine-digit TFN must be quoted to employers for employees to have withholdings calculated using the various tax brackets. In the absence of this number, employers are required to withhold tax at the highest marginal rate from the first dollar. Likewise, banks must also withhold the highest marginal rate of income tax on interest earned on bank accounts if the individual does not provide their TFN to the bank.
Corporate and business taxpayers are required to provide their TFN or (ABN) to the bank. Otherwise, the bank will withhold income tax at the highest rate of tax. Self-employed taxpayers also use ABN numbers to identify their business to the government and to ensure the correct tax is paid. To apply for a TFN or an ABN is very easily done online and are both processed through the Australian Government. You will need identification, such as a passport or drivers licence.
Good to know:
It is not an offence to fail to provide a bank or financial institution with a tax file number or Australian Business Number. However, the bank or financial institution will be required to withhold income tax at the highest marginal rate of income tax.
Tax deductions
A wide range of tax deductions is available, including donations to Australian charities. Deductions can vary greatly, depending on your occupation, but may include items such as uniforms or workwear, electricity and the internet for those who work from home, or travel costs. To claim for deductions, you will need to keep original receipts or invoices for documentation. Available deductions can sometimes change from year to year. For more information on tax deductions, visit the government's page.
Filing income tax
The income tax is collected at source on salaries. Tax rates will vary according to your status in Australia (whether you're a permanent resident or a non-resident). If you are self-employed or a freelance worker, you will need to keep detailed records so that you can declare your full income when filing taxes.
All Australian residents, whether temporary or permanent, must file a tax return each year. The form is available online. If you are new to Australia and unsure of tax procedures, or if your financial situation is complex, it can be useful to hire an accountant or tax agent to file on your behalf.
Good to know:
All taxpayers in Australia must pay the Medicare contribution, called the Medicare Levy Surcharge, even if you're not eligible for the programme. However, you can apply for a refund on the surcharge when filing your tax.
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