Australian Taxation System

It is true that Australia is one of the highest taxing countries on Earth, and it is important that if you are migrating to Australia that you fully understand the taxation system before you arrive.

By adopting a few tax saving tips and structuring advice when you establish yourself in Australia, you may save yourself thousands of dollars of tax.

Residency:

If you become a resident of Australia, or you stay for at least six continuous months in a year, then you will be taxed on all income that you earn in Australia as well as income that you earn overseas. This means that once you immigrate to Australia and you still hold bank accounts in the UK, then the UK income will be taxed in Australia. It will then need to be included in your Australian income tax return.

An Australian resident is taxed on all sources of income whether they are earned in Australia or not. You will get a tax credit for tax already paid in the UK on this income.

Tax File Number (TFN):

Once you arrive in Australia, you will be required to apply for an Australian Tax File Number (TFN). This can be done easily through the Australian Taxation Office website at ATO Assist.

You need an Australian Tax File Number to open up bank accounts, for employment and to file an income tax return. When you arrive in Australia it is one of the first things that you should consider obtaining immediately, because it takes at least two to three weeks for your Tax File Number to be issued. If you delay the application of a tax file number it could hold up you opening up bank accounts and finding employment.

Goods and Services Tax (GST):

Australia also has a Goods and Services Tax (GST). The current rate is 10%. It is a very complex tax. You must be aware that if you establish a business, whether self-employed or through a company or trust, you must register for GST if you expect your gross sales to be more than $50,000 in a year.

So remember, if your turnover is expected to be over this, you are required to register for GST, and comply with the GST requirements.

How Much Will I be Taxed?

Click here for the current individual tax rates

The Australian taxation system is based on a tiered structure, that is the more you earn, the more you will be taxed. There is a tax-free threshold of $6,000, which you can earn under and effectively not pay any tax at all. The highest rate of tax is 47% if your taxable income is over $62,500 in the year. There is also the Medicare Levy of 1.5%. This is compulsory and must be paid at the time of lodging your income tax return and receiving an assessment.

There is also a hidden Medicare Surcharge of an extra 1%. This applies if your taxable income is more than $50,000 as an individual, or $100,000 as a married couple, and you do not have private health cover, then you are required to pay an extra 1% into Medicare.

It maybe worthwhile considering taking out private health cover when you arrive in Australia, as in many cases, if you are required to pay the extra Medicare Surcharge, it normally amounts to at least ½ of the annual premium to join a health fund anyway. Therefore you are going to pay half the annual premium as it is, so you might as well pay the remaining amount and receive private health coverage.

Can I operate under a Tax Saving Structure?

Thousands of dollars in tax can be saved if you decide from the beginning, when starting a business in Australia, to choose the right structure through which to trade. The common structures are sole trader, company, trust and partnership. Each has its advantages and disadvantages and can save tax in the long term.

The current company tax rate is a flat 30% in Australia, and therefore you can see that some tax can be saved by operating through a company, rather than paying the maximum individual tax rate of 47%, a saving of at least 17%. However, there are complex rules dealing with Personal Services Income (PSI) which also needs to be addressed.

This information is general and we do suggest you seek specific tax advice when you arrive in Australia. Consulting a tax accountant who is a Certified Practising Accountant (CPA) will help you get things in order.

It is always better to become familiar with the Australian taxation system before you arrive, and therefore we do suggest you browse some of the more common websites, as listed below, so that you are familiar with all requirements.