Information about income tax in Australia.
One of the first things you need to do after your arrival in Australia is to apply for a Tax File Number (TFN). TFN's are used by the Australian Taxation Office (ATO) to ensure that your income tax is assessed at the appropriate level.
How much tax will you pay?
Income tax is money paid to the government from the money you earn. It is usually paid throughout the year as you earn the income. For example, if you work for an employer, your employer will deduct tax from each pay and send it to the Australian Tax Office (ATO) on your behalf.
The amount of tax you pay will depend on how much you earn. Australia uses a sliding scale of tax.
This means that if you earned $60,000 per year, your tax would be calculated like this:
The tables above only apply to Australian residents who are 18 and over and does not include the Medicare levy.
To calculate how much you need to pay tax on your estimated income, please click here.
In addition to income tax, most people will also have to pay a Medicare levy. The Medicare levy is calculated as 2% of your taxable income. It is used to help fund our public health system. Generally, it allows you to visit a doctor or receive treatment at a public hospital free of charge. Low income earners may have their Medicare levy reduced or may not have to pay it at all. People not entitled to use our Medicare system, such as foreign residents, will not have to pay the Medicare levy either. High income earning individuals or families who do not have an appropriate level of private patient hospital cover may have to pay a Medicare levy surcharge. This is an extra 1%, 1.25% or 1.5% of their taxable income depending on their income level. To calculate how much you need to pay for your Medicare Levy please click here.
What income is taxable?
Income that you must pay tax on includes money from:
- Pensions and annuities
- Most government payments
- Capital gains
- Income from trusts, partnerships or businesses
- Foreign income
Income that is not taxable
You will not have to pay tax on:
- Lottery winnings and other prizes
- Small gifts or birthday presents
- Some government payments
- Child support
- The tax-free portion of your redundancy payment
- Government contributions to your first home saver account and super co-contributions
Reducing your tax bill
Tax deductions are certain expenses you incurred in order to earn your income. Deductions reduce your taxable income before the tax is calculated.
Common deductions include:
- Work-related expenses
- Self-education expenses
- Charitable donations
- The cost of managing your tax affairs (like paying an accountant)
Super is a long term savings plan that you undertake throughout the course of your working life to ensure you can live comfortably in retirement. Most Australian employees receive an amount of 9% of their salary, called the 'superannuation guarantee', which is contributed to a super fund by their employer. Whilst you are working, your super savings grow because money is paid in to your super account regularly, which can be invested through your super fund.
Salary sacrificing is another way you can reduce your tax bill. Salary sacrificing is when you put some of your pre-tax income towards a particular benefit before you are taxed. This is usually only tax-effective for medium and high income earners. Please see below example of how you can save by salary sacrificing:
For more details on salary sacrifice please click here.
Where to go for help on your tax
You need to file your tax return after June each year. Tax is a very complex area and many people choose to use an accountant or tax agent to do their tax return. For more information of choosing an accountant, please click here.