Tax information: going to Australia.
Welcome to the tax guide on going to Australia, produced by Deloitte. Looking for tax information about leaving Australia, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 1 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
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Before/once you arriveQ. Do I need a work permit to work in Australia?
A. All nationals, excluding Australian and New Zealand citizens, require a valid working visa (Subclass 457) to enter and remain in Australia.
Q. Should I complete any documentation upon arrival in Australia?
A. If you are a foreign national then you should apply for an Australian tax file number when you arrive in Australia for tax purposes.
If you will remain non-resident for tax purposes you are required to notify Australian financial institutions of this. This will ensure that the required withholding tax is deducted and remitted by financial institutions at source. Failure to notify the financial institutions may result in penalty tax being payable.
Q. Should I open an offshore bank account or is it beneficial to open an account on the Australian mainland?
A. Offshore bank accounts do not create tax advantages from an Australian perspective but they may be advisable from a home country tax perspective. It is important to note that Australia has introduced new tax legislation with respect to foreign exchange gains and losses that present additional complications for tax payers with offshore investments.
If you will remain non-resident for tax purposes or are regarded as a temporary resident for tax purposes in Australia, interest earned from offshore bank accounts will not be subject to Australian tax and may therefore be beneficial.
Q. What is the tax year?
A. 1 July to 30 June.
Q . How will I be taxed in Australia?
A.Liability to Australian tax will depend upon your residence status and the source of the income. Australian residents are subject to tax on worldwide income and capital gains. If you are non-resident then you will be liable for Australian income tax on Australian source income and on capital gains from the disposal of taxable Australian assets. If you are a temporary resident then you will be liable for Australian tax on your worldwide employment income, and Australian source income and capital gains from the disposal of taxable Australian assets.
Q. How is tax residence determined?
A. You will be a resident of Australia for taxation purposes where you satisfy any of the following tests:
· You are considered domiciled in Australia, unless the tax authorities are satisfied that your permanent place of abode is outside Australia.
· You have been in Australia for more than 183 days in the tax year, either continuously or intermittently, unless the tax authorities are satisfied that your usual place of abode is outside Australia and you have no intention of taking up residence in Australia.
· You are a member of a superannuation scheme established under the Superannuation Act 1990, or an eligible employee for the purposes of the Superannuation Act 1976 or the spouse or a child under 16 years of a person covered by either Act.
The question of whether you are a tax resident of Australia is a question of fact and circumstances. It is to be determined on a year-by-year basis by reference to the particular circumstances of each case.
The Commissioner has also issued a taxation ruling on the residency status of short-term visitors (two years or less) to Australia. The ruling has focused on the behaviour of the visitor and whether the behaviour is consistent with the person 'residing' there.
There are a number of factors which the tax authorities will consider. These include the following:
· Intention or purposes of presence;
· Family and business/employment ties;
· Maintenance and location of assets; and
· Social and living arrangements.
If you enter Australia on a pre-arranged employment contract for a period greater than six months, the position adopted by the Australian Taxation Office will generally regard you as a tax resident for the entire period of your stay. It should be noted that a period of less than six months might also be sufficient grounds for tax residency if your behaviour is consistent with “residing” in Australia.
In addition, if you are considered a resident of Australia for tax purposes, you will be considered a temporary resident if you meet all of the following criteria;
· You hold a temporary visa granted under the Migration Act
· You are not an Australian resident within the meaning of the Social Security Act 1991
· You do not have a spouse who is an Australian citizen or permanent visa holder (includes the person you live together with on a genuine domestic basis even though you are not legally married).
Please note special rules apply to New Zealand nationals who were in Australia on 26 February 2001 on Special Category visas.
Q. What does ‘Domicile' mean in Australia?
A. In Australia, a person's domicile is, generally, the place considered to be your permanent home. A domicile of origin is obtained at birth and a domicile of choice is obtained only when you make a conscious decision to change your domicile of origin. For a place to be regarded as your domicile of choice, you must (1) actually reside in that place and (2) intend to remain there permanently or for an indefinite period. If you are an expatriate in Australia and intend to stay there for a limited period you will almost invariably retain the domicile that you had before your arrival in Australia, however it is recommended you seek professional tax advice on arrival.
Q. Are there any regional or state taxes?
A. No. There are no municipal, provincial, cantonal, or church taxes in Australia.
Q. Can I file a joint tax return with my spouse?
A. No. Married persons are taxed separately, not jointly, on all types of income. Joint filing of returns by spouses is not permitted.
Q. What rate of tax will I pay in Australia?
A. Total Tax Payable = (Taxable income x Tax rates) - rebates + Medicare Levy
2008/09
Resident individuals (including temporary residents)
$ Taxable Income
$ Tax Payable
$0 - $6,000
$ Nil
$6,001 - $34,000
$ Nil + 15% over $6,000
$34,001 – $80, 000
$4,200 + 30% over $34,000
$80,001 – $180,000
$18,000 + 40% over $80,000
Over $180,000
$58,000 + 45% over $180,000
Medicare Levy of 1.5% of taxable income.
An additional 1% Medicare surcharge may
apply to individuals who are subject to the
Levy, earn income over certain levels and
do not have adequate registered private
health insurance
Q. Can I claim a tax deduction for charitable contributions?
A. Charitable contributions made to approved organisations are deductible.
Q . Are any other tax deductions available?
A.
Business expenses are deductible for employees although, entertainment expenses or expenses of a capital, private or domestic nature are not. Deductible expenses include technical journals, professional association memberships and subscription and car and travel expenses. Commuting expenses to and from work are not deductible.
Depreciation on assets used for income producing purposes, home office expenses and other expenses relating to business or income producing purposes may be allowed.
Personal pension fund contributions, tax agent fees paid by the employee and prior year losses (which carry forward indefinitely) are available as a deduction for both business and non-business expenses.
Further, some rebates may be claimed. E.g. 20% of unreimbursed eligible medical costs that exceed $1,500.
Q .
I will also be paying tax in my home country. Am I being taxed twice?
A.
Foreign tax credits are available to mitigate potential double taxation. Generally, a resident of Australia is entitled to claim a credit for foreign tax actually paid on foreign-source income that is assessable in Australia, up to the amount of the Australian tax payable on that income.
Similarly, if you remain taxable in your home country on income earned in Australia a foreign tax credit may be available in your home country.
Where you receive certain investment income e.g. dividends and interest, from a country with which Australia has entered into a Double Tax Treaty, the credit is limited to the rate of tax specified in the relevant tax treaty, notwithstanding that tax may have been deducted in excess of this amount. A refund claim for the tax deducted in excess of the treaty rate must be made separately to the relevant foreign (home) tax authority.
Q. Do I need to file an Australian tax return?
A. Yes.
Q. When does it need to be filed?
A.Returns should be filed by 31 October following the end of the relevant tax year on 30 June.
Q. Can the filing deadline be extended?
A. The filing deadline can be extended if you are registered with, and the tax return is prepared by, a tax agent.
Q. What is the procedure for paying tax?
A. Pay As You Go (PAYG) is the system for the collection and remittance of income tax, Medicare levy and HECS liabilities. PAYG has two main components, PAYG Withholding and PAYG Instalments.
PAYG Withholding is a system by which taxpayers deduct amounts from payments made to others and remit these amounts to the Australian Tax Office. Employment income is also subject to tax withholding at source under the PAYG system. Tax is also withheld at source from Australian interest and dividend income if you do not provide your tax file number to the paying institution.
Where a taxpayer has “base assessment instalment income” (income other than wages or salaries) of A$1,000 or more or their most recent tax return resulted in a tax debt of A$250 or more, the taxpayer will generally be required to pay PAYG Instalments.
For the majority of taxpayers, the PAYG instalments will be payable quarterly. Each instalment will be due 21 days after the end of the quarter.
Q. Will non-cash compensation be taxable (e.g. housing)?
A. Generally, employer provided benefits are subject to Fringe Benefits Tax (FBT) payable by the employer, not income tax.
Australia does provide for special tax concessions when employers provide certain benefits to employees who are considered to be living away from their usual place of residence. Tax-free living-away-from-home (LAFH) allowances and benefits are available under FBT rules. Accommodation, relocation expenses, and a reasonable food allowance can be provided tax free in these circumstances.
Employees are considered to be living away from home ("LAFH") if they are required to live away from their usual place of residence in order to perform their employment duties and are expected to return to their home country at the completion of the assignment. The Australian Taxation Office ("ATO") has established a practice whereby it will regard an overseas employee as living away from his or her usual place of residence where it is established that the employee is only in Australia for a period of up to four years.
Australia also has complicated rules regarding the taxation of employee shares and options and specific taxation advice should be obtained.
Q. I will be working in different countries while living in Australia. Will all of my employment income be taxable in Australia?
A. If you are regarded as resident or temporary resident in Australia you will be taxable on worldwide employment income, regardless of where the duties are carried out.
If you are regarded as a non resident you will be taxable on Australian-source income only, although you may be exempted from Australian tax if you remain liable to tax in your home country and you qualify for exemption under the conditions of a tax treaty between Australia and your home country.
However, the Australian Taxation Office has recently issued a Public Ruling indicating that the circumstances in which an exemption from Australian tax is available under its tax treaties will be very limited and therefore specific advice on the issue should be obtained.
Q.
Will I pay Australian tax on investments and rental income generated in my home country?
A. If you are regarded as resident of Australia you will be liable to Australian tax on your worldwide income, although foreign tax credits may be available in respect of foreign tax paid on foreign source income. Temporary residents and non-residents will not pay Australian tax on investments and rental income generated in their home country.
Q. Does Australia have a Capital Gains Tax regime?
A. Net capital gains are included in assessable income and are subject to income tax. Any transfer of assets may have capital gains ramifications. The disposal or deemed disposal of any asset brings the capital gains tax provisions into operation. Certain reliefs are, however, available in the form of rollover elections, which operate to defer capital gains tax liability.
For capital gains tax purposes, an asset is any form of property, tangible or intangible, although it must be an asset which is considered as “taxable Australian property” if a gain on its disposal is to be subject to capital gains tax in the hands of a non-resident or temporary resident.
Capital gains tax was not introduced in Australia until 19 September 1985. Accordingly, it applies only to disposals of assets acquired, or deemed to have been acquired, on or after 20 September 1985.
Both resident (including temporary residents) and non-resident individuals are liable for capital gains tax with some exclusions mentioned below. It is important to note that residents and temporary residents have different capital gains tax treatments.
A resident taxpayer is liable for capital gains tax on gains from the disposal of all assets, worldwide, unless specifically excluded. If a gain from the disposal of an asset located abroad has already been subject to a foreign capital gains tax, a resident taxpayer may be able to claim a credit against Australian tax for the foreign tax paid.
A non-resident and temporary resident taxpayer is liable for capital gains tax on gains from the disposal of specific types of assets that are associated with Australia, known as taxable Australian property. The liability of a non-resident may be further restricted under the terms of a double tax treaty. Assets considered as taxable Australian property include:
direct or indirect interests in Australian real property
rights or options to acquire Australian real property
certain mining rights
CGT assets used in carrying on a business through an Australian permanent establishment
assets that the taxpayer has elected at the time of ceasing residency to be considered taxable Australian property in order to defer any CGT liability until actual sale (election out of deemed disposal rules).
From 1 July 2006, CGT exemptions apply if you are a temporary resident for Australian income tax purposes.
Capital gains or losses on the disposal of assets that are not taxable Australian property are disregarded. In limited circumstances certain employee share plan gains may be taxable.
Temporary residents are exempt from the CGT deemed acquisition/disposal rules unless they become a resident.
A special deemed disposal and acquisition rule applies when the residence status of a taxpayer changes. When you cease to be resident in Australia for tax purposes you are generally deemed to have disposed of all assets acquired since 19 September 1985, other than assets having the necessary connection with Australia, for their market value. If you become resident in Australia while owning assets acquired after 19 September 1985, other than assets having the necessary connection with Australia, you are deemed to have acquired those assets at the time you become resident at their then market value.
It is possible to elect to override the deemed disposal rule on all affected assets and defer any tax charge until the assets are actually disposed of at some later date following departure. Furthermore, if you have been resident for fewer than five out of the ten years immediately preceding your departure, you are not deemed to have disposed of any assets owned at the time you became resident, or any assets acquired by inheritance whilst a resident.
Q.
What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?
A. There are no inheritance, estate, wealth or gift taxes in Australia. However, there is a Stamp Duty regime together with a number of indirect taxes which may affect the cost of living in Australia (Goods and Services Tax and land tax for example).
Q.
Will I be required to pay Australian Social Security? How do I register with the Australian Social Security authorities?
A.
Although Australia operates a social security system that provides pension, health, unemployment, and other benefits, there are no special contributions required of the employer or employee that link directly to the social security system. There are, however, two main contributions systems in addition to the tax impost that must be considered. These are the Medicare Levy and the Superannuation Guarantee Charge.
For the year ending 30 June 2009 a tax resident (including temporary residents) of Australia are liable to pay a Medicare levy amounting to 1.5% of that person’s Australian taxable income. The Medicare levy is charged on earnings through payroll withholding. It applies to investment income also and is collected through the tax return process. (No levy is payable if a person’s taxable income is below a certain level; low-income earners pay the levy at progressive rates below 1.5%. Non-residents of Australia are not subject to the Medicare levy) Note that the Medicare levy rises to 2.5% if an individual is liable for the levy and is deemed a high income earner by reference to prescribed rates AND the individual does not have private health cover to a base rate with an Australian registered health fund.
All visitors to Australia on a temporary visa are ineligible to receive benefits under Medicare unless a citizen or living in a country that has a Reciprocal Health Agreement with Australia. However, if you are a tax resident of Australia, you will be liable to the Medicare levy unless a Medicare Levy Exemption Certification is obtained from the Minister of Health.
Employers are required to make Superannuation contributions for employees working in Australia for the purpose of providing retirement funding. Superannuation contributions are an employer cost which in many instances for non-expatriate employees are salary packaged into the total remuneration package for an employee. For expatriates in Australia, employers bear the cost of Superannuation in addition to the compensation package. Superannuation contributions are required presently at 9% of employment income, subject to limitation.
At present there are certain limited classes of employees for whom contributions are not required, including:
• “prescribed employees” (generally, temporary resident senior executive level employees only);
• employees that are exempt under a totalisation agreement;
• employees aged 70 and over; and
• employees receiving salary and wages of less than A$450 per month.
Superannuation may be withdrawn after an individual has permanently departed Australia, however it should be noted that taxes will be withheld and payable at the rate of 30% or 40% (depending on the components of the payment) on any such payment.
Furthermore, in the case that a totalisation agreement exists between Australian and your home country (for example as in the case with the US and Belgium from 1 July, 2005) it may be possible to claim an exemption from Australian superannuation where you remain subject to the social security regime in your home country.
Q . Are social security contributions deductible for tax purposes?
A. No.
