Taxation is one of the primary income streams for a government. It’s levied upon almost all working individuals and businesses operating in the country. The most significant form of taxation in Australia is the income tax.

Australian Tax System is based on progressive rates, which simply means the more an individual’s income is, the more they will be liable to pay in taxes.

Income tax is applicable to a person’s taxable income. Taxable income includes income from salary & wages, business profit, investment etc. It also includes profits from sale of investments like Real Estate or shares.

Apart from individual income tax, the two other prominent forms of taxes in Australia are Good & services tax and Corporate taxes.

Australian Tax Office (ATO) is responsible for collecting and processing taxes in the country.

Tax Residency

Tax rates are different for residents and non-residents. Tax residency is different from residency under immigration laws. It means that you can be a tax resident but not a permanent resident or Citizen under Immigration laws. To learn more about Tax residency, please refer to this page

Tax Rates for 2019-20 for Tax Residents

There are no taxes for residents if they earn $18,200 or less in a year. That’s the minimum threshold, after which taxes are levied.

For taxable income between $18,200 and $37,000, the tax rate is 19% on earnings over the minimum threshold. So if someone makes $35,000 in a year, they would need to pay $3,192 in taxes.

The next bracket is $37,000 to $90,000. For someone earning a yearly amount within this range, the tax rate is $3,572 + 32.5% on anything over $37,000. So if someone earns $86,268 in a year (average income), their tax bill would be $19,584. That’s about 22.7% of the total income earned.

The highest tax rate an individual in Australia can earn is $54,097 (fixed amount) + 45% on anything over $180,000. This tax rate doesn’t include the additional 2% medical levy that almost all Australians pay.

Taxable income	Tax Payable
0 – 18,200	NIL
18,201 – 37,000	Nil + 19% of excess over 18,200
37,001 – 90,000	3,572 + 32.5% of excess over 37,000
90,001 – 180,000	20,797 + 37% of excess over 90,000
180,001+	54,096 + 45% of excess over

You can use our tax calculator to work out your tax liability.

Tax Rates for Non-Residents

For foreigners, there is a 32.5% tax on any income under $90,000—the tax bracket changes for individuals earning more than that

Taxable income	Tax Payable
0 – 90,000	32.5% for each dollar
90,001 – 180,000	$29,250 + 37% for amounts over $90,000
$180,001 and over	$62,550 + 45% for amounts over $180,000

Working holidaymakers (visa types 417 and 462) pay 15% on all income up to $37,000 then resident rates on all income from $37,001 onwards 

Taxation, Returns, and Deductions

The tax year in the country is from 1^st July to 30^th June. When individuals lodge their own returns, it’s typically due by 31^st October. The most common way to lodge taxes with the ATO is to use myTax – an online portal to easily lodge your yearly taxes. Taxpayers have to create a myGov account first, before lodging taxes using my Tax.

It is always best to go through an Accountants & Tax agent such as ThinkWiser to ensure no work-related expenses are missed out.

There are several work-related tax deductions that you may be eligible for. But it’s crucial that you only claim deductions for expenses directly related to earning your income, and you haven’t been reimbursed for these expenses. Most common deductions include:

• Vehicle use and travel expense (If it’s a mixed-use situation, you have to separate private and personal use expenses)
• Clothing related expenses (mostly for uniformed workers)
• Home office expenses for self-employed individuals and employees in the times of COVID
• Equipment and tools you use for work
• Educational and learning expenses

Deductions can be tricky, especially if you have to split your personal expenses from your work ones. Make sure you have documentable proof of all work-related expenses.

Conclusion

If your employer withholds your taxes, then your tax lodging may become a fairly easy process. If you are filing your own taxes or have a second income from a side business or self-employment, your taxes can get a bit complicated. If you are in doubt, consult a professional to make sure you have lodged your tax returns as accurately as possible.