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2022 Guide to Individual Taxation in Australia

Updated: Sep 4, 2022



Introduction to Australian Tax


The tax residency status of an individual and the source of their income determine whether they are subject to Australian tax.


An Australian resident is subject to assessment on their worldwide income (except to the extent that it is exempt income). The only income that non-residents and temporary residents are typically assessed on is income that is directly or indirectly generated from sources within Australia.



When is the due date for tax return filing in Australia?


The tax year runs from 1 July to 30 June in Australia.


Individual tax return re normally by 31 October each year. Using a tax agent to file your tax return can have the added advantage of a tax filing extension until March or even June of the following year.


This is typically advantageous for dual national expats who have a filing with a December year end such as the United States.


Am I liable to file a tax return this year?


An individual who resides in Australia and has total income from domestic and international sources that exceeds the minimal level (AUD18,200 for 2021/22) is required to file tax returns. Non-employment income from sources outside of Australia is typically disregarded for temporary residents for this purpose. Additionally, job income obtained before arriving in Australia from sources outside of Australia is typically disregarded for this reason.


Separate tax returns are filed by spouses. In Australia, joint filing is not permitted. The pro-rata tax-free threshold will only be accessible in the year where a taxpayer either becomes or stops being an Australian resident (for tax purposes) (for tax purposes).


What are the tax rates in Australia?


Taxes on taxable income range from 19 percent to 45 percent and are graduated. Non-residents are subject to different rates of tax. The value of all non-cash fringe benefits granted to employees is generally exempt from income tax in the hands of individuals and is subject to fringe benefits tax (FBT), a tax payable by the employer.


Residents and temporary residents tax rates

Tax Bracket

Minimum Tax on Tax Bracket

Additional Tax Rate

From

To

AUD ($)

Percent (%)

0

18,200

0

0%

18,201

45,000

0

19%

45,001

120,000

5,092

32.5%

120,001

180,000

29,467

37%

180,001

above

51,667

45%

Non-resident tax rates

Tax Bracket

Minimum Tax on Tax Bracket

Additional Tax Rate

From

To

AUD ($)

Percent (%)

0

120,000

0

32.5%

120,001

180,000

29,467

37%

180,001

above

51,667

45%

What are some common types of income taxed in Australia?


In general, income from employment is taxable to the extent that it was earned or derived when the employee was an Australian resident, or, in the event of money earned or derived while the employee was a non-resident, to the extent that the income was obtained from duties carried out in Australia.

  • any type of earned income*

  • income from employee share or option plans

  • income from self-employment

  • trade or business partnership

  • dividends

  • interest

  • rental income

  • capital gains

  • foreign exchange gains.

*When received or, if sooner, when the employee is eligible to receive it, employment income is taxed.


What are some common types of tax exempt income in Australia?


The actual relocation expenses paid by the employer will typically be reimbursed free of both income tax and FBT.


While FBT may be due by the employer, an interest subsidy is not taxed to the employee (even if the loan is provided by an overseas related company). No FBT will be due if, for instance, the employee utilises the lent funds to buy assets that generate taxable income.


A temporary resident who receives a bonus after arriving in Australia will not be required to pay Australian tax on the portion of the bonus that is related to work done before arriving in Australia.


Living Away From Home Allowances (LAFHA)

For a maximum of 12 months per work location, tax-exempt housing and a food and drink allowance may be offered to Australian citizens and permanent residents who meet the requirements listed below.


  • They must relocate away from their usual residence for the sole purpose of carrying out their employment.

  • Their usual place of residence is available to them for immediate use and enjoyment (not rented out).

  • The employee or the employer must provide documentation to support travel expenses. Up to a particular level dependent on family structure, food and drink expenses do not need to be supported; however, any expenditures above that amount must.

  • Every year, a LAFHA declaration is provided to the employer.

No matter their immigration status, workers who are on a rotational schedule are not required to comply the above requirements.


How is tax taken out of employment income?


PAYG Withholding

In Australia, employers are obligated to withhold tax from any payments of salary or wages, through the operation of a Pay As You Go (PAYG) withholding system. This is similar to many systems in foreign countries such as the PAYE system (Pay As You Earn) or TDS system (Tax Deducted at Source).


Most employers will ask new starters to complete a Tax File Number (TFN) declaration, without which, employers will withhold tax at the top marginal tax rate of 45% plus applicable levies.


PAYG Payment summary

At the end of each financial year (1 July to 30 June) the employers will provide an annual statement of earnings known as the PAYG Payment summary. This will detail all salary, wages, taxable allowances, bonuses, fringe benefits and the details of all taxes withheld and remitted to the Australian Taxation Office (ATO).



What are some common deductions claimed against income?


Australia does not have a general tax deduction system available. The generic principle behind allowing a tax deduction is whether they are an outgoing that is necessarily incurred in gaining or producing assessable income. This significantly reduces the extent of tax deductions claimable in comparison to many other countries. For this reason, most taxpayers in Australia utilise the services of a tax agent to arrange the filing of their tax returns.


There are some other provisions in the law that allow a deuction for certain types of expenditure such as:


  • costs of preparing a tax return & tax agent fees

  • gifts to specific charities approved as a Deductible Gift Recipient

  • interest expenses on borrowings that were used to acquire income producing assets (not capital purchases that are not income producing).

  • expenses relating to business usage and unreimbursed business expenses

  • certain professional costs such as professional memberships, professional education, and directly related professional subscriptions.



What are some other items to be aware of?


Australia operates a complex taxation regime that can produce significantly different results based on a person's individual circumstances, for this reason it is best for migrant professionals to seek the assistance of an international tax expert if they have overseas ties, overseas assets, or have had international movements or changes of residence.


Some of the indicators of a person requiring professional advice are as follows:


  • Having an expatriate status & access to expatriate concessions

  • Earning income abroad while a resident of Australia

  • Holding foreign assets or foreign pensions while a resident of Australia

  • Taxation of capital gains on investments

  • Stock options exercises

  • Foreign loans and foreign exchange transactions

  • Foreign Gifts

  • Capital gains concessions

  • Changing Ta Residency & Deemed disposal

  • Foreign Trusts & Foreign Wills

  • Avoiding double taxation where foreign taxes are paid

Tax planning and tax compliance for international movements, international migrants and expatriates can be a complex area. Please contact us for assistance.




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