Types Of Taxes in Australia: No doubt living in Australia has its own perks but one must be knowledgeable about the tax system in Australia. Knowing about the system helps the people to live smoothly without worrying about what tax and on which things tax applied there.
Do you own properties, lands or have assets in Australia? If that’s the case then it is a must to know about each and everything related to the tax system and its working in your country.
In this article, we will explain the tax system in detail and what are the types of it. There are multiple changes occurring in the tax system of Australia and you must stay up to date to that.
Don’t worry, we have got you covered.
Types Of Taxes in Australia:
What is the Australian tax system?
First of all, you need to know about the current tax system imposed in Australia. Australia has an improvised tax system which is the combination of direct and indirect taxes which are imposed and regulated by the Commonwealth and other government states depending upon the type of taxes.
For those who don’t know, the Commonwealth is the federal system in Australia which imposes tax on taxpayers and Australians. The federal system of Australia has the jurisdiction to tax residents of Australia on their worldwide income and non-residents to pay tax on their Australian income.
Furthermore, the Australian government gives foreign income tax credits to the individuals who pay foreign tax on foreign income.
Types of Tax System in Australia
Tax on incomes
Income tax is the most common and mainstream revenue of the tax system. It consists of three main pillars;
- Capital gains.
- Personal income.
- Business earnings.
The income tax is applied on the person’s income, wages, profits earned from businesses. The higher one earns the income, the higher tax will be applied.
What are income tax rates?
The threshold tax rate in Australia is $18,200. If you are earning $18,200 or less than that in a year, then no tax will be applied. If you earn around $45,000 then 19% tax is applied on it per year. A simple thumb rule is, 9 cents on every dollar.
To elaborate more about income tax rates, the lowest rate is 19% and the highest rate is 45% depending upon earnings.
Apart from that, some holiday makers (who have visas of 417 and 462) will pay 15% tax if they earn $45,000 or more than that.
Tax on Capital gains (CGT)
If you own assets, properties or lands in Australia and you sell them in order to gain profit then you have to pay the capital gains tax on the profitable income. There are some exemptions as well; motor vehicles and personal use assets or family residence don’t include capital gain tax.
If you hold an asset or property for more than a year before selling it, then ATO (Australian tax office) offers a 50% discount. However, holding an asset for less than a year has no such offer. Also, non-residents can’t have such discounts on capital gains tax.
Consumption taxes- Goods and Services tax
For every domestic used item (like grocery items), you pay tax which is already included in the price of a product. It is called goods and services tax. Basically, it is the value added tax to the services and goods you use.
In Australia, you pay a flat 10% on goods and services whenever you purchase. However, education, exports, food and health don’t include any GST.
Most of the countries have a unified GST system which means only a single tax rate is applied on all goods and services. Such countries merge all the central taxes( like sales tax, excise duty tax and service tax) with state level taxes (like entertainment tax, entry tax, transfer tax etc).
Furthermore, the businesses or individuals who are making a turnover of more than $200 million dollars are required to register for the GST tax.
Taxes of individuals and businesses on income and capital gains
If we talk about the both entities separately, we have mentioned how individuals have to pay in Australia whether they are residents, temporary residents or non-residents.Tax is applied on the basis of their income.
If non-residents (who are living in Australia for less than 6 months) earn around $80,000 have to pay 32.5% on every $1. Non-residents have to pay more tax than the residents. Threshold is applied to only residents.
A company is considered as the separate entity in Australia from the stakeholders. The income made by a company is taxable and if the company qualifies for the residency in Australia then the tax rules will be the same as the individuals.
Unlike individuals, companies have to pay 30% tax on the total revenue irrespective of how much income is generated. However, the Australian tax system makes sure that the dividends are taxed according to the stakeholder’s taxable income.
Apart from above taxes there are some other taxes in Australia which are applied on luxury cars, fringe benefits and more. So, if you are planning to have some luxury cars in Australia or have employees to take care of, then the next section is for you.
Luxury Car Tax
If you import a luxury car in Australia of more than $80,000, then you will be paying 33% tax on it. Yes! Luxury cars in Australia are not easy to buy and on top of that pay the tax on them. However, if your luxury car is for commercial use; for loads etc, then the exemption will be applied.
Fringe benefits tax
The tax employers pay on the benefits they provide to their employees other than the salaries and wages are called fringe benefits tax. On an average, around 46.5% is charged from fringe benefits. Some of these benefits are imposed by the government and they are mandatory for each employer to provide those benefits (like health insurance) to their employees.
Some employers add additional fringe benefits in the package at the time of recruitment to enhance their work quality and standard.
Medicare levy is the health insurance in Australia and every tax paying individual pays medicare levy surcharge in the taxable income. 1-1.5% rate is applied to those who have high income and don’t have any private medical insurance.
If you earn low income then you will be given exemptions or discounts.
Superannuation guarantee tax
Another tax which is imposed by the government of Australia is the superannuation tax. This tax is paid by the employers to make sure their employees are earning some additional revenue apart from their monthly wages.
In the past years, the superannuation guarantee tax rate has been increased by 9.5%. However, superannuation guarantee charge (SGC) is applied when employers fail to submit the minimum level of superannuation tax.
Australian State Taxes
Australian states have legal authority to impose tax on multiple state based transactions. Most common taxes of states and territories which imposes taxes on immovable properties in the particular state, employment and car registration etc.
Let’s have a look at state taxes.
When you transfer a property and dealings, stamp duty is applied which varies from state to state. The rate depends upon the value of the transaction or depends upon the state. New South Wales in Australia offers a stamp duty according to the sliding rate of the real property value.
The least stamp duty imposed is 1.5% and it goes up to 7%. Knowing about state to state stamp duty charges is important so when you transfer the file or property, you will have an idea about that respective state’s charges.
Similarly, if you own a tax in any state of Australia, land tax is applied which varies from state to state and the land value. For example, Victoria has 0-2.5% land tax and New South Wales has 0-2% land tax rates.
Every state has stated the limited amount of wages of the employers. When the limit exceeds, employers have to pay the payroll tax. The rates in Australia vary from 3%-7%.
For example, if you live in South Wales and have an yearly wage around $750,000 or more than that, then 5.45%. Similarly, Victoria has 4.5% payroll tax charges.
When you purchase a vehicle, tax is applied on transferring and the charges depend upon the type of vehicle and the circumstances around the state.
Living in Australia is one thing and knowing about its tax system and how it works whether you are resident or non-resident is another thing. Through this article, we have made sure to provide maximum information related to the tax system (federal and non-federal) of Australia.
You need to make sure about lodging the tax return in the ATO office to pay tax. The tax system works progressively. If you are having a high income, you will be paying high income tax.
If you are still curious about some aspects related to the tax system of Australia, feel free to ask us.
Information and statistics for This Post provided by My Tax Daily.