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All about Income Taxes in Australia

  The taxation system in Australia is said to have existed since the early 19th century. Paying taxes was mandatory under the federal government and has been operational since the World War II. Income tax is the main source of revenue for the government. The collection of income tax is done through the ‘Australian Taxation Office (ATO)’, where further information on the taxation system can be obtained. A few basic information on tax obligations in the system with a special focus on individual taxation is given below.  

Tax Return

Taxation for Resident Individuals

For individuals, a taxable income isthe difference between measurable income and permissible deductions. Measurable income fall into 3 categories; 1. Personal earnings (Salary & Wages) 2. Business income  3. Capital gains   The above income is taxed at a progressive rate of 0-45% plus a 2% Medicarelevy as well. The initial AUD 1 – AUD 18, 200 earned is a tax-free threshold for residents. Tax from salaries and wages are withheld from the employers as commonly practiced in many countries also known as a ‘pay as you go (PAYG) system. A higher marginal rate of around 45% is withheld as a tax in case the employee does not provide a Tax File Number (TFN). Likewise higher marginal rates are applied to income earned on bank accounts belonging to individuals, businesses, andcorporates in case they fail to provide a TFN or an Australian Business Number (ABN). Failure to produce a TFN is not an offense but results in tax refunds. Any changes or deductions will be declared in the annual income tax return and will be refunded upon an assessment. You can use an online tax refund calculator to calculate your tax refunds.  

Taxation for Low-Income Individuals

The Low Income Tax Offset (LITO) is a system introduced for residents on low incomes. In addition to the initial tax-free threshold on the first income, these individuals will only need to pay an amount of AUD 445 until their income reaches AUD 37,000. Thereafter LITO is reduced by 1.5c for every dollar earned additionally. And finally automatically stops when the income reaches AUD 66,667. LITO is calculated by ATO when refunds are filed and not part of PAYG system. The 2% Medicare applied to these individuals.  

Taxation for Non-Resident Individuals

Medicare is not applicable and these individuals are not entitled to LITO as well.  

Taxation for Minors

Residents under the ages of 18 are taxed differently and will not be taxed for employment or inheritances.  

Family Tax Benefit

For a family unit comprising of dependent children, the taxation system has supplementary rules applied to as Family Tax Benefits (FTB), which is further divided into 2 parts FTB-A and FTB-B. This is much more complex and more information needs to be obtained through ATO, Centrelink, and Family Assistance Office.  

Capital Gains Tax

Capital gains include taxes imposed on individuals and companies who can legally own assets. For Trusts and partnershipstaxes are imposed on their beneficiaries and partners respectively.  

Company Tax

Companies are taxed at a flat tax rate of 30%. Under the Australian dividend imputation system, Australian-resident shareholders who are entitled to a dividend from an Australian company which pays company tax can claim a tax credit, which is also referred to as a franking credit. However, non-resident shareholders do not have such entitlements and will be obligated to a withholding tax. Small businesses with turnovers less than $10 million are entitled to a reduced tax rate of 27.5%.  

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