Australian Tax System

 

What is income tax?

Income tax in Australia is imposed by the federal government on the taxable income of individuals and corporations.  On individuals, income tax is levied at progressive rates, and at one of two rates for corporations. The income of partnerships and trusts is not taxed directly, but is taxed on its distribution to the partners or beneficiaries.

Income tax is the most important source of revenue for government within the Australian taxation system. Income tax is collected on behalf of the federal government by the Australian Taxation Office.

Income tax is applied to an individual’s taxable income and is paid on all forms of income. This includes wages from your job, profits from business and returns from investments. Income tax can also apply to assets such as when a house or shares are sold.

Taxpayers with two or more jobs or other taxable income sources should be aware that they may be caught in an unintentional tax trap as a result of the tax free threshold.

Income tax rates

Australia has a progressive tax system, which means that the higher your income, the more tax you pay.

You can earn up to $18,200 in a financial year and not pay tax. This is known as the tax-free threshold and after which, the tax rates kick in.

Tax rates for residents in 2022/23 include (Note: these rates do not include the Medicare levy):

Taxable income	Tax on this income
0 – $18,200	Nil
$18,201 – $45,000	19 cents for each $1 over $18,200
$45,001 – $120,000	$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000	$29,467 plus 37 cents for each $1 over $120,000
$180,001 and over	$51,667 plus 45 cents for each $1 over $180,000

The lowest rate is 19% and the highest rate is 45%, which is only charged on income over $180,000. Most Australians sit in the middle bracket.

You are also taxed on superannuation contributions and earnings, and there are several tax benefits to paying money into your fund.

Tax rates for foreign residents for 2022-23 are:

Taxable income	Tax on this income
0 – $120,000	32.5 cents for each $1
$120,001 – $180,000	$39,000 plus 37 cents for each $1 over $120,000
$180,001 and over	$61,200 plus 45 cents for each $1 over $180,000

Working holidaymakers (visa types 417 and 462) pay 15% on all income up to $45,000 then resident rates on all income from $45,001 onwards

Lodging your return

Lodging your tax return can be done anytime after June 30 and the absolute deadline for self-lodgement is the 31^st October. Whilst there is the option to self lodge, it is best to go through a qualified tax agent such as ELTAX Chartered Accountants, to ensure everything is filled out correctly and you receive the best return possible in a timely manner.

In order to ensure the lodgement process is as smooth as possible, make sure you have all your important documents together before coming in for your appointment or lodging online or through our mobile application. Filing away important receipts, invoices and documents throughout the year will save you a lot of time when it comes to completing your return. It’s also important to ensure all your details are up to date. If you’ve moved or changed your name, these details need to be updated with the ATO. Minor errors like these can hold your return up for weeks or even lead to fines.

If you’re retired or have access to your superannuation fund, it is important that you are fully aware of your tax obligations. People of different ages have different levels of obligations when it comes to tax on superannuation withdrawals.

Deductions

Tax deductions are expenses that you have incurred during the financial year for work purposes. Overall, tax deductions reduce taxable income and are often the reason why people get a tax refund.

Any money spent as part of your work is tax deductible. If you spent money on something to allow you to do your job you are entitled to claim that cost as a deduction. For example, travel expenses for work purposes or the cost of uniforms. If you use your personal laptop, desktop, tablet or phone for work, you can claim a deduction for work-related use of the device.

It is important to remember to only claim what you’re entitled to. Private expenses or any costs that were reimbursed by your employer cannot be claimed. Claiming what you’re not entitled to can lead to fines and a stressful audit by the ATO.

If you’re unsure of what you can and can’t claim, please feel free to reach out to our team for further information.

Individual income tax rates

(source: Australian Tax Office updated: July 2022)

The income tax rates below shows the amount of tax payable in every dollar for each income tax bracket depending on each individual’s circumstances.

Below are the tax rates for individual taxpayers who are:

• Residents
• Foreign residents
• Working holiday makers

Residents

These rates apply to individuals who are Australian residents for tax purposes.

Resident tax rates 2022–23

Taxable income	Tax on this income
0 – $18,200	Nil
$18,201 – $45,000	19 cents for each $1 over $18,200
$45,001 – $120,000	$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000	$29,467 plus 37 cents for each $1 over $120,000
$180,001 and over	$51,667 plus 45 cents for each $1 over $180,000

The above rates do not include the Medicare levy of 2%.

Resident tax rates 2021–22

Taxable income	Tax on this income
0 – $18,200	Nil
$18,201 – $45,000	19 cents for each $1 over $18,200
$45,001 – $120,000	$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000	$29,467 plus 37 cents for each $1 over $120,000
$180,001 and over	$51,667 plus 45 cents for each $1 over $180,000

The above rates do not include the Medicare levy of 2%.

Foreign residents

These rates apply to individuals who are foreign residents for tax purposes.

Foreign resident tax rates 2022–23

Taxable income	Tax on this income
0 – $120,000	32.5 cents for each $1
$120,001 – $180,000	$39,000 plus 37 cents for each $1 over $120,000
$180,001 and over	$61,200 plus 45 cents for each $1 over $180,000

Foreign resident tax rates 2021–22

Taxable income	Tax on this income
0 – $120,000	32.5 cents for each $1
$120,001 – $180,000	$39,000 plus 37 cents for each $1 over $120,000
$180,001 and over	$61,200 plus 45 cents for each $1 over $180,000

Working holiday makers

These rates apply to working holiday maker income regardless of residency for tax purposes.

You are a working holiday maker if you have a visa subclass:

• 417 (Working Holiday)
• 462 (Work and Holiday).

Working holiday maker tax rates 2022–22

Taxable income	Tax on this income
0 – $45,000	15%
$45,001 – $120,000	$6,750 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000	$31,125 plus 37 cents for each $1 over $120,000
$180,001 and over	$53,325 plus 45 cents for each $1 over $180,000

Working holiday maker tax rates 2021–22

Taxable income	Tax on this income
0 – $45,000	15%
$45,001 – $120,000	$6,750 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000	$31,125 plus 37 cents for each $1 over $120,000
$180,001 and over	$53,325 plus 45 cents for each $1 over $180,000

Company tax rates

(source: Australian Tax Office updated: July 2022)

Company tax rates apply to entities which include:

• companies
• corporate unit trusts
• public trading trusts.

The full company tax rate of 30% applies to all companies that are not eligible for the lower company tax rate.

Base rate entity company tax rate

From the 2021–22 income year, companies that are base rate entities must apply the 25% company tax rate. The rate was previously 27.5% from the 2017–18 to 2019–20 income years and 26% in the 2020–21 income year.

A company is a base rate entity for an income year if:

• the company’s aggregated turnover for that income year is less than the aggregated turnover threshold for that income year, and
• it has 80% or less of their assessable income in that income year that is base rate entity passive income – this replaces the requirement to be carrying on a business from the 2017–18 income year onwards.

The aggregated turnover threshold is $25 million for the 2017–18 income year and $50 million from the 2018–19 income year.

The aggregated turnover from any prior income year is irrelevant when working out if a company is a base rate entity for any particular income year.

Base rate entity passive income is:

• corporate distributions and franking credits on these distributions
• royalties and rent
• interest income (some exceptions apply)
• gains on qualifying securities
• a net capital gain
• an amount included in the assessable income of a partner in a partnership or a beneficiary of a trust, to the extent it is traceable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.

Table: Progressive changes to the company tax rate

Income year	Aggregated turnover threshold	Tax rate for base rate entities under the threshold	Tax rate for all other companies
2017–18	$25m	27.5%	30.0%
2018–19 to 2019–20	$50m	27.5%	30.0%
2020–21	$50m	26.0%	30.0%
2021–22 and future years	$50m	25.0%	30.0%

Not-for-profit companies

2021–22 tax rates – Not-for-profit companies (see note 4)

Income category	Rate (%)
Taxable income: $0–$416	Nil
Taxable income: $417–$915	55
Taxable income: $916 and above	30

Note 4: Not-for-profit companies with a taxable income of between $417 and $915 are taxed on their taxable income above $416. Not-for-profit companies with a taxable income above $915 are taxed on all of their taxable income.

Not-for-profit companies that are base rate entities

2021–22 tax rates – Not-for-profit companies that are base rate entities (see note 5)

Income category	Rate (%)
Taxable income: $0–$416	Nil
Taxable income: $417–$762	55
Taxable income: $763 and above	25

Note 5: For the 2021–22 income year, not-for-profit companies that are base rate entities with a taxable income of between $417 and $762 are taxed on their taxable income above $416.

Working holiday makers

(source: Australian Tax Office updated: July 2022)

If you work in Australia, tax will be withheld from your pay and you may need to lodge a tax return each year. The requirement to lodge a tax return will depend on how much income you have earned during the year.

The Australian income year starts on 1 July and ends on 30 June the following year.

As a working holiday maker, the first $45,000 of your income is taxed at 15% and the balance is taxed at ordinary rates. You are a working holiday maker if you have a visa subclass of either:

• 417 (Working Holiday)
• 462 (Work and Holiday).

You can check your visa status using the Visa Entitlement Verification Online system .

Tax withheld by your employer

If you are a WHM, and your employer is registered with us as a WHM employer, they will withhold tax at a rate of 15% for the first:

• $37,000 you earn during 2019–20 and earlier income years
• $45,000 you earn during 2020–21 and later income years.

Applying for a tax file number

If you plan to work in Australia you need a tax file number (TFN). Your TFN is your personal reference number in our tax system. You can apply for your TFN online at www.ato.gov.au .

Alternatively once you have your working holiday visa, ELTAX Accountants can assist in applying for a TFN to simplify the process.

Starting work – TFN declaration

When you start work, you give your employer a Tax file number declaration. This helps the employer work out how much tax to withhold from your pay.

Your employer will check if you have a visa subclass 417 (Working Holiday) or 462 (Work and Holiday), but you should tell them anyway to ensure they tax you correctly.

Your employer is required to register with us as an employer of working holiday makers. Working holiday makers do not register.

If your employer is registered with ATO, they will withhold tax from your pay at 15% on the first $45,000 of income.

Lodging a tax return

The Australian income year ends on 30 June each year.

You are required to lodge an income tax return if either of the following applies:

• your taxable income for the year was more than $45,000
• you carried on a business (ABN).

You will need to lodge an income tax return should you wish to claim any deductions.

If you leave Australia permanently before 30 June, you can lodge your tax return early.

Tax rates

The working holiday maker tax rate is different to the tax rate for Australian residents.

Please refer to Individual Tax Rates section for up to date income tax rates for Working Holiday Visa Holders.

Medicare levy

Most working holiday makers are foreign resident taxpayers. Foreign resident taxpayers do not pay the Medicare levy.

If, given your circumstances, you determine that you are an Australian resident for tax purposes then you may be liable to pay the Medicare levy.

Australia has reciprocal health agreements with the following countries:

• Belgium
• Finland
• Italy
• Malta
• Netherlands
• New Zealand
• Norway
• Republic of Ireland
• Slovenia
• Sweden
• United Kingdom.

If you come from one of these countries and are an Australian resident for tax purposes you will be liable to pay the Medicare levy.

Departing Australia superannuation payments (DASP)

Employers are required to make super contributions on behalf of their eligible employees to fund retirement.

If you worked and earned super as a working holiday maker, your super will be taxed at 65% when it is paid to you. This DASP tax rate for working holiday makers is effective from 1 July 2017.

You can apply for the DASP after you leave Australia if you meet all requirements.