Income Tax in Australia

Tax File Numbers

Every income earner in Australia should have a tax reference number, called a Tax File Number, and when this is quoted to Employees and Banks (for interest payments), etc., tax is deducted from income at the current rates.

If a Tax File Number (TFN) is not quoted, then tax is deducted at the maximum rate.

You can apply for a tax file number (TFN) online only if you are currently in Australia and you have:

• a valid permanent migrant visa, or
  
• a valid visa with work rights, or
  
• a valid overseas student visa, or
  
• a valid visa allowing you to stay in Australia indefinitely.
  

Tax Return

Every taxpayer must complete an Annual Tax Return, and this calculates any differences in tax over or under paid.

Most people need to submit their Tax return by the last day of October each year, but there are extensions for those who lodge via a Tax Agent.

Some Non-Tax payers should also complete an annual Tax Return, as they may be entitled to a rebate, even without paying anything.

Most Australians end up paying more tax, during the year, than they should, due to various allowances being only claimable at the end of the year, such as Sun Screen protection for outside workers, overtime meal allowance, and various other allowances, and they end up receiving a Tax Rebate shortly after submitting the Annual Tax Return. (This is often within 14 days).

There is also the Education Tax Refund available to many families with children in school, which can refund up to $375 for each primary school child and $750 for each secondary school child, per year.

The Net medical expenses tax offset is also available for those who have spent over $1,500 in the tax year on eligible Medical Expenses. You can claim 20% of the excess as a full Tax Rebate.

Average Tax Refunds in Australia

In 2006-07, 80% of Australia Tax payers received a refund of tax at the end of the year. The average refund was $1,998. The number of tax refunds given was 9.9 million, out of the 11.8 million taxpayers.

The expected average refund for 2008-09 has recently been quoted as $2,351, although about half of all taxpayers expect to get back under $1,000.

More than half of all Australians use a Tax Agent to prepare their tax returns.

Tax rates

Tax Rates for the year 2009/2010

* Low income earners under $15,000 will pay no tax, due to the Low Income Tax Offset.

The above rates DO NOT include the 1.5% Medicare levy

Tax Rates for the year 2008/2009

* Low income earners under $14,000 will pay no tax, due to the Low Income Tax Offset.

The above rates DO NOT include the 1.5% Medicare levy

• Previous Years Tax Rates

In the first year of residency, you only receive a pro rata amount of the Tax Free Threshold.

The Low Income Tax Offset will be increased from $1,200 to $1,350 from 1 July 2009. This means that those eligible for the full Low Income Tax Offset will not incur a net income tax liability until their annual income exceeds $15,000.

Employers deduct tax in a different way to the UK system, and this often gives rise to a tax refund at the end of the year.

The reason for this is that the Australian Tax Office has adopted a simpler system of allowing 1/12 of the annual threshold for every month, (or 1/52 if paid weekly).

This means that if someone does not work every week of the year, they temporarily miss out on that weeks threshold allowance, until the end of the year.

The UK system works on a cumulative basis, and calculates tax pretty accurately every week/month.

An example of the effect of this for someone who only works here for 6 months would be:

Based on a $120,000 annual salary, that would be $10,000 per month...



Gross Tax Calculated at:

• First $500 tax free
  
• Next $2,333 at 15% = $350
  
• Next $3,833 at 30% = $1,150
  
• Next $3,334 at 40% = $1,333

Total tax = $2,833 per month or $16,998 for that period of 6 months.

However, at the end of the year, the correct figures for a gross wage of $60,000 would be:

• $3,000 tax free
  
• $14,000 at 15% = $2,100
  
• $46,000 at 30% = $13,800

Total Tax Due $15,900

A Tax Refund of the difference, $1,098 would be paid after the tax return is submitted.

This figure would often be higher, after other tax allowances are also taken into effect.

Tax Deductions 2008-09

There are many different deductions that can be made against your taxable income in Australia, and these can include Sunscreen and Sunglasses for some occupations.

Other more common deductions are use of car for work related purposes, and this can sometimes be claimed on a mileage basis of 58c per km for a vehicle up to 1600cc, 69c for 1600 to 2600cc, and 70c for over 2600cc.

Meal Allowances and Overnight accommodation allowances can also be claimed, and these can be viewed at: PDF file ato.gov.au

Note that some travel costs cannot be claimed, and in particular, you cannot claim the cost of normal trips between home and work as that travel is private.

You cannot claim it even if:

• you did minor tasks – for example, picking up the mail on the way to work or home
  
• you had to travel between home and work more than once a day
  
• you were on call – for example, you were on standby duty and your employer contacted you at home to come into work
  
• there was no public transport near where you worked
  
• you worked outside normal business hours – for example, shift work or overtime, or
  
• your home was a place of business and you travelled directly to a place of employment
  

The above information is available from the Australian Tax Office webpage at:

• ATO - Claiming car expenses

Medicare Levy

In a similar way to the UK "National Insurance Contributions", the Australian system has a Medicare Levy charged to most taxpayers, to go towards the costs of the Australian Medical System.

The amount payable is however very different to the UK.

The UK rate is 11% for the employee on the amount earned between the lower and upper limits. Based on the the median weekly pay for full-time employees in the UK in April 2007 being £457 pw, the employees NI contribution works out at £39.27 or 8.6% of wage, and the employer paying £45.70, a total of £84.97 or 18.59% of the gross wage.

The Australian rate is 1.5% for people, but a slightly higher rate of 2.5% for single people earning more than $50,000 AND who choose not to take out Private Health insurance. This threshold is increased to $100,000 for a married couple.

In May 2007 the Average Full-time adult total weekly earnings was $1,134.30 per week, ($58,983 pa) meaning that a single person on this wage would pay $28.35 per week (2.5%), or $17.02 per week (1.5%)
if they had a Private Medical Insurance policy.

Tax On Children's Bank Interest

At what age can a child get a TFN? (Tax File Number)

A child can get a TFN at any age (there is no minimum age).
Children are not exempt from quoting a TFN.

Childrens Bank Interest

If a child quotes their date of birth, they are entitled to a threshold of $420 per income year on interest.

If they don’t quote their date of birth, the threshold is the same as the adult threshold of $120 per income year.

Where the total interest earned during an income year is $420 or more

If the child quotes a TFN the investment body will not withhold PAYG tax.
If the child does NOT quote a TFN the investment body will withhold PAYG tax at 48.5%.

This applies to the total interest earned (not just the amount above $420, or the payment period threshold equivalent).

If the child has had PAYG tax deducted, the child will need to lodge a return to claim these amounts back from the Tax Office. A child who does not have a TFN will need to get one before they can lodge a return.
This section last Modified: Wednesday, 11 May 2005

The above information from:

• Australian Tax Office

Payroll Tax

Australia also has a Payroll Tax, payable by most employers but with some
exceptions, and should be considered when the UK Employer NI payment is taken
into account.

The Australian Payroll Tax is a STATE government tax, and is levied only on some Employers, depending on total payrol size.

The current rate in QLD can be up to 4.75% (2007-08) but is only payable when the Companies TOTAL wage bill is higher than $1,000,000 per year

• www.osr.qld.gov.au/taxes/payroll/exempt.shtml)
  

Full legislation data for all States can be found at:

• www.payrolltax.com.au

GST

GST is a similar tax to the VAT in the UK. However, being a different country, it does not apply to the same products that it might in the UK.

You will notice some things in Australia that have GST applied, where VAT would not be applied in the UK.

VAT was introduced in the UK in April 1973, at the single rate of 10%, (with 4 subsequent rate changes,

• Source: www.ifs.org.uk/ff/indextax.php

GST was introduced in Australia in July 2000, and has been at the single rate of 10% since that date.

Any future change to the rate of GST in Australia would need the agreement of every Australian State Government and the Federal Government.

Both countries had a previous tax system, Purchase Tax in the UK and Sales Tax in
Australia, and these were both abolished when replaced with the new VAT/GST tax.

As with the UK, the rate of Personal Income tax was also reduced at the same time that the GST was introduced.

Overseas Investment Property

Australian Taxable Income includes all your worldwide income, including profits from renting out a property overseas. A tax offset for foreign income tax paid is available.

As from July 2008, any losses incurred from the rental of property outside Australia can now be offset against Australian Taxable Income.

Tax for Non Residents

If you are visiting Australia for more than six months, and for most of that time work in the one job and live at the same place, you are generally an Australian resident for tax purposes.

If you are holidaying in Australia, or are visiting for less than six months you are generally NOT an Australian resident for tax purposes.

If you are a non-resident for the full year, then the Non Resident Tax rates apply:

Non Resident Tax rates 2007-08
Income Range:
$0 – $30,000 Tax rate is 29c for each $1
$30,001 – $75,000 Tax is $8,700 plus 30c for each $1 over $30,000
$75,001 – $150,000 Tax is $22,200 plus 40c for each $1 over $75,000
$150,001 and over Tax is $52,200 plus 45c for each $1 over $150,000

Non-residents are not required to pay the Medicare levy.

UK Tax

A very useful starting point for many aspects of UK tax once you are no longer UK resident is:.

• HM Revenue and Customs Centre for Non-Residents

Individuals who are not ordinarily resident may register with their building society, bank or other deposit taker to receive interest without the deduction of tax.

You can do this by completing declaration form R105 and sending it to your building society, bank or other deposit taker.

Reclaiming Tax paid in the UK during your last year.

If you have left or are about to leave the UK, you should normally complete form P85, or in certain cases form P85(S).

• www.hmrc.gov.uk/cnr/r_and_d.htm
• www.hmrc.gov.uk/cnr/p85_p85s.htm

Comparison of Australian and UK tax rates

These figures were taken from Tax calculators in both countries in July 2009.

Average Earners

UK
£ 2,250.00 Gross Monthly pay (median UK Male Full time earnings)
£ 342.08 Tax
£ 195.11 NI
£ 537.20 Total Deductions
23.9% : Deductions as a percentage:

Australia
$ 5,500.00 Gross Monthly pay (average Australian Male Full time earnings)
$ 1,222.00 Tax
$ 82.50 Medicare
$ 1,304.50 Total Deductions
23.7% : Deductions as a percentage

High paid

UK
£10,000.00 Gross Monthly pay (4.4 times median UK Male Full time earnings)
£ 3,160.83 Tax
£ 413.24 NI
£ 3,574.07 Total Deductions
35.7% : Deductions as a percentage:

Australia
$24,500.00 Gross Monthly pay (4.4 times average Australian Male Full time earnings)
$ 9,299.00 Tax
$ 367.50 Medicare
$ 9,666.50 Total Deductions
39.5% : Deductions as a percentage

Comparison figures based on average earnings of both countries at April/May 2008

Median earnings of full-time male employees was £521 per week in April 2008 (£27,092 pa)
http://www.statistics.gov.uk/cci/nugget.asp?id=285

Average earnings of full-time male employees was $1,274.60 in May 2008 ($66,279 pa)
http://www.abs.gov.au/ausstats/[email protected]/mf/6302.0?OpenDocument

Links

• Australian Tax Office
• Net Medical Expenses Tax Offset
• Medicare Levy
• Previous Years Tax Rates
• Various Tax Rates for each State 2008-09Stamp Duty, Gambling Tax, Vehicle Tax, etc

Introduction for workers from outside Australia

• A PDF file called: Introduction for workers from outside Australia

Lodging your return early

If you are leaving Australia you may in certain circumstances be able to lodge your return early – read

• Leaving Australia – lodging your return

If I am a working holidaymaker, do I have to lodge a return?

Most working holidaymakers visiting Australia for only a short time are tourists or travellers and are not Australian residents for tax purposes. If you have been paid a salary or wages in Australia, you are required to lodge an income tax return.

• Do I have to lodge a return