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Aug 07 2009

Tax System Comparison UK-Aus


The Tax system in Australia may appear ‘similar’ to the UK tax sytem, but there are actually many differences.

These differences result in the majority of Australian taxpayers getting a tax refund at the end of every year.

Both the UK and Australia allow a tax free threshold, an initial amount of annual earnings that isn’t taxed, or is classed as being taxed at zero %.

UK System:

  • The annual threshold is divided by 52 and you are allowed to earn 1/52 for each week before tax is calculated.

Australian System:

  • The annual threshold is divided by 52 and you are allowed to earn 1/52 for each week before tax is calculated.

Similar so far, and hopefully straightforward, for the first week of the year…

The second week is where the system changes…

UK System:

  • In week two, you are allowed 2/52 of your annual tax free threshold, and tax is then calculated on the total for those TWO weeks and then the previous tax paid is deducted from that figure, leaving the balance of tax being near enough correct.

Australian System:

  • In week two, you are again allowed to earn 1/52 of that annual threshold before tax is calculated, no complex calculations are done to ensure that the cumulative tax for the year to date is correct.  This will be done at the end of the tax year.

You may now notice that the Australian system does not take account of unpaid holidays, or other unpaid time off work, when calculating tax.  You get 1/52 of the annual entitlement for every weekly pay period.  If you have 4 weeks not at work, and not paid, you have only had 48/52 of your annual tax free threshold.

UK System:

  • At the end of the year, you should have paid the correct tax, and not owe anything or be owed anything.

Australian System:

  • At the end of the year, you will have paid a certain amount of tax, but it will be unlikely to be exactly correct.

But it doesn’t end there, as we also have many other Tax Deductions and Tax Offsets that are available to the average Australian taxpayer to claim against his or her tax.

  • Laundry expences, to clean your work uniform.
  • Low Income tax offset. If your income is considered low, you get a bit more back.  Incomes up to $60,000 in 2008/09 are inclued in this offset.
  • Mature age worker offset. If you are over 55, you may be entitled to another offset.
  • Medical Expenses over $1500 for the year, then another claim is available, to get a bit more back.
  • Tax return too complex for you ?  Pay a tax agent to complete it, and claim some of that cost back from the Tax Office.
  • and it goes on….  Sunscreen, Suncream etc etc

In 2006/07, out of 11.8 million tax returns, 9.9 million of them were given refunds, and the average refund was just under $2,000.







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