What are the deductions such as income tax and social security?

Taxes in Australia vary depending on the state or territory where you live. They are levied at Commonwealth (federal), state and local government levels. For example, income tax and capital gains tax are levied at federal level. States and territories receive their income from stamp duty on commercial and legal documents (cheques, insurance policies, mortgage transactions, receipts and transfers of land), payroll tax (a state tax imposed on an employer’s payroll and the biggest source of income for state governments), taxes on land, spirits (liquor) and motor vehicles, and miscellaneous licence fees. (Since the high court’s decision to outlaw state taxes on alcohol, petrol and tobacco, there has been an ongoing taxation war between state and federal governments.) The main form of local government tax is property tax, augmented by charges for services such as sewerage and water. There are no gift, inheritance or wealth taxes; Australia is the only OECD country not to have some form of inheritance tax.

   The total of direct and indirect taxation is low by international standards, although the government is continually inventing new ways of taxing people, including fringe benefit tax, various taxes on superannuation (private pension) funds, a tax to pay for the public health service, and a tax for not having private health insurance. Australia went through a major reform of the tax system in 2000 and introduced a goods and services tax (GST, a form of value added tax) in July 2000.

   Federal income tax is levied under a two-tier system: the First Class system applies to the self-employed and companies, and the Second Class system, called Pay-As-You-Go (PAYG), for employees. The self-employed pay their tax in arrears, whereas an employee’s income tax is deducted at source from his salary by his employer. There’s no state income tax in Australia, although it may be introduced under wide-ranging tax reforms under consideration.

   The income tax year in Australia runs from 1st July to 30th June (for reasons known only to the tax office), although in certain circumstances an accounting year beginning on a different date may be used for tax purposes. Changes in federal taxation are usually announced in the annual budget statement in May.

   Australian income tax law recognises the following general types of taxpayer: companies, individuals, partnerships and trusts. Specific provisions apply to certain businesses, minors and superannuation funds.

   Residents of Australia are taxed on their worldwide income and non-residents only on Australian income only. You’re considered to be resident in Australia for tax purposes if any of the following applies:

- you normally live in Australia;

- you’re domiciled in Australia and don’t have a permanent place of abode outside the country;

- you spend at least 183 days per financial year in Australia (unless you don’t intend to take up Australian residence and have a usual place of abode outside Australia).

Tax Rates - Residents

Australia has four progressive income tax rates for resident taxpayers, which are as follows (2009/10 tax year):

                 Taxable Income                 Tax Rate            Cumulative Tax

                      Up to $6,000                      0%

                   $6,001 to $35,000                 15%                    $4,350

                  $35,001 to $80,000                30%                    $17,850

                 $80,001 to $180,000               38%                    $55,850

                     Over $180,000                    45%

   Anyone who isn’t resident in Australia for a whole financial year receives a pro rata portion of the tax-free allowance ($6,000 per year); for example, if you’re resident in Australia for half the tax year, your tax-free allowance is $3,000. Different (usually higher) rates apply to those aged under 18. There are no reductions for couples in Australia, where the same tax rates apply to married and single individuals.

Tax Rates - Non-residents

There’s no tax-free allowance for non-residents (although they don’t pay the Medicare levy) with business and trading income in Australia, who are taxed as shown below (2009/10 tax year). Note that non-residents must obtain a tax file number (TFN) and give it to their employer, otherwise they’ll be taxed at the maximum rate of 45 per cent on all income. 

                        Taxable Income                 Tax Rate       Cumulative Tax

                             Up to $35,000                   29%               $10,150

                         $35,001 to $80,000                30%               $23,650

                        $80,001 to $180,000               38%               $61,650

                            Over $180,000                   45%

For more information see Living and Working in Australia by David Hampshire