Taxes In Australia: What Taxes Do Foreigners Have To Pay And How Much?

 In Australia, Economics & Finance

Made a move to Australia and now you’re wondering about how taxes in Australia works for you as an expat? As the saying goes, nothing in life is certain except for death and taxes, and this is true no matter where you are! The Australian tax year runs from 1 July to 30 June, however, a corporation may apply to adopt a substitute year of income (for instance, 1 January to 31 December). Your Australian tax return, on the other hand, is due 31 October each year,

Understanding the workings of the Australian tax system is essential for anyone relocating to or already moving there. The good news is that Australia is a major financial hub and has a well-established network of financial institutions to help you acclimatise to your new home. We have consolidated a guide on everything you might need to know about paying taxes in Australia as a foreigner to help you with this new transition! (Do note that this guide deals with individual income tax, as opposed to corporate taxes paid by businesses.)

This guide should not be used in isolation to make any financial decisions about your Australian tax affairs and you should always consult a tax specialist for professional advice.

Income bracket

taxes in australia, how much tax do foreigners pay in australia
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Australian residents are subject to Australian tax on worldwide income. On the other hand, non-residents are subject to Australian tax on Australian-source income only. An exemption from Australian tax on certain income is available for individuals, potentially expats, who qualify as a temporary resident. Temporary residents are generally exempt from Australian tax on foreign-source investment income (but not foreign employment income) and capital gains realised on assets that are not taxable Australian property (TAP).

You can refer here for more information regarding tax exemption as a temporary resident and whether or not you satisfy the requirements of being a temporary resident.

What percentage of taxes do you pay in Australia? 

Australian resident

Annual Income (AUD)Tax On This Amount
0 – $18,200NIL
$18,201 – $45,00019 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
Note: This table is based on tax rates for the year 2020 to 2021, which is subject to change and should be used as a rough guide.

In addition to income tax, there is a 2 per cent Medicare Levy that Australian residents need to pay. You may be exempt from paying the Medicare Levy if you meet certain medical requirements or are not entitled to Medicare benefits.

Foreign Australian resident

Annual Income (AUD)Tax On This Amount
0 – $120,00032.5 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
Note: This table is based on tax rates for the year 2020 to 2021, which is subject to change and should be used as a rough guide.

Do note that the foreign Australian rates apply to individuals who are foreign residents for tax purposes. Your residency for taxes in Australia is not dependent on what visa you have but rather determined by a test administered by the Australian Tax Office (ATO).

Generally for expats, you will declare your tax return on any income you earned in Australia, including (but not limited to):

  1. Employment income
  2. Rental income
  3. Australian pensions and annuities (unless an exemption is available under Australian tax law or a tax treaty)
  4. Capital gains on any Australian assets

As you are not entitled to the tax-free threshold, you pay tax on every dollar of income you earn in Australia. In addition, you are not entitled to Medicare health benefits as you do not need to pay the Medicare levy as an expat.

The good news? An offset is available for payments of foreign tax that are similar to the Australian income tax payable on the same income. What this means is that both Australian and foreign resident expat taxpayers may claim a tax offset (equal to the lower of an equivalent foreign tax paid or the amount of the Australian tax payable) for an amount included in the taxpayer’s assessable income, on which you have paid foreign income tax. Given that Australia has entered into double tax treaties with 45 countries, this means that you need not pay double income tax!

The Australia Tax Office has a useful calculator here that helps you determine your liability for tax in Australia as an expat!

Citizenship

taxes in australia, how much tax do foreigners pay in australia
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What is your tax residency status?

As mentioned above, foreign Australian tax rates apply to individuals who are foreign residents for tax purposes. Your residency for taxes in Australia is not dependent on what visa you have but rather determined by a test administered by the Australian Tax Office (ATO). Primarily, there are 4 statutory tests to determine your residency.

1. Resides test

This is the primary test to determine residency and whether or not you need to pay taxes in Australia. If you reside in Australia, you are considered an Australian resident for tax purposes and do not need to apply for any of the other residency test. Some of the factors that can be used to determine residency status include:

  • physical presence
  • intention and purpose
  • family
  • business or employment ties
  • maintenance and location of assets
  • social and living arrangements

More information about the resides test can be found here. if you don’t satisfy the resides test, you’ll still be considered an Australian resident if you satisfy one of three statutory tests below.

2. Domicile test

You’re an Australian resident if your domicile (the place that is your permanent home) is in Australia, unless otherwise proven that your permanent place of abode is outside Australia.

More information about the domicile test can be found here.

3. 183-day test

This test only applies to individuals arriving in Australia. You will be a resident under this test if you’re actually present in Australia for more than half the income year, whether continuously or with breaks.

More information about the 183-day test can be found here.

4. The Commonwealth superannuation test

This test applies Australian Government employees working at Australian posts overseas and who are members of the Commonwealth Superannuation Scheme (CSS) or Public Sector Superannuation Schemes (PSS). If this is the case, you (and your spouse and children under 16) are considered to be a resident of Australia regardless of any other factors.

More information about the Commonwealth superannuation test can be found here.

How to file your tax returns?

taxes in australia, how much tax do foreigners pay in australia

Now that you know all about taxes in Australia and how much you need to pay as a foreigner, it’s time to get down to the nitty-gritty of how you can go about doing so. Fortunately, the process of paying your taxes in Australia is a relatively simple one.

The quickest and easiest way to pay is with BPAY or a credit/debit card. Note that you will have to contact your bank or financial institution to make this payment from your Australian cheque, savings, debit card or credit card (Visa or MasterCard) account. Once you’ve done so, you can now add and update stored credit or debit card details directly on ATO online to make your payment.

The first time you file your taxes in Australia, you will need to set up a myGov account and link it to your Australian Tax Offices myTax account. The instructions below will help you set up your online account:

  1. Have your tax file number (TFN) ready.
  2. Create a myGov account here.
  3. Call the ATO at 13 28 61 and enter your TFN and date of birth as requested. Select 1 at the prompt to get your unique linking code, which will verify your account from an operator. Note that each unique code will expire after 24 hours!
  4. Sign into myGov and link to the ATO from the “Services” page.
  5. Select “I have a linking code” and follow instructions as prompted.

Voila! With that, your myTax account has been set up and you can easily pay your taxes online. For those that prefer a more hands-on, traditional approach, you can also pay by phone by dialing the Government EasyPay service at 1300 898 089.

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