Do you have to pay tax in Australia?

If you are earning income in Australia, there is no question of paying taxes.  It is more likely than not that the income is taxable.  The question then is the matter of how much.  There is a common misconception that in Australia you pay very high taxes and that there is global taxation.  These blanket claims are misleading as they fail to consider that there are different treatments for an Australian tax resident as opposed to an Australian non tax resident.  Australia also has many investor friendly tax deductions that reduce the taxable income.

Are you a tax resident in Australia?

The first question to ask is whether you are a tax resident or a non-resident for tax purposes in Australia because that will determine your tax obligations and subsequently your tax liability. A tax resident will be taxed on income from all sources (section 6-10 of the Income Tax Assessment Act [ITAA] 1997) while non-residents are only taxed on Australian sourced income (section 6-5 of the ITAA 1997). Also, a tax resident and a non-resident have different tax rates.

Non-resident tax rates

For financial year ended 30 June 2010 (i.e. 1 July 2009 to 30 June 2010) 

Taxable income	Tax on this income
0 to $35,000	29 cents for each $1
$35,001 to $80,000	$10,150 plus 30 cents for each $1 over $35,000
$80,001 to $180,000	$23,650 plus 38 cents for each $1 over $80,000
$180,001 and over	$61,650 plus 45 cents for each $1 over $180,000

* Non-residents are not required to pay Medicare levy of 1.5%
Source: ATO, http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm&mnu=42904&mfp=001/002

Example
Mark owns one property in Melbourne which he earns a return of 6% per annum on his $500,000 investment. His assessable income for the year ended 30 June 2010 is $30,000 and total tax deductions is $12,000. Therefore, his taxable income is $18,000 and he needs to pay $5,220 in tax.     

For financial year ended 30 June 2011 (i.e. 1 July 2010 to 30 June 2011)

Taxable income	Tax on this income
0 to $37,000	29 cents for each $1
$37,001 to $80,000	$10,730 plus 30 cents for each $1 over $37,000
$80,001 to $180,000	$23,630 plus 37 cents for each $1 over $80,000
$180,001 and over	$60,630 plus 45 cents for each $1 over $180,000

 

Resident tax rates

For financial year ended 30 June 2010 (i.e. 1 July 2009 to 30 June 2010)

Taxable income	Tax on this income
0 to $6,000	Nil
$6,001 to $35,000	15 cents for each $1 over $6,000
$35,001 to $80,000	$4,350 plus 30 cents for each $1 over $35,000
$80,001 to $180,000	$17,850 plus 38 cents for each $1 over $80,000
$180,001 and over	$55,850 plus 45 cents for each $1 over $180,000

 * The above rates exclude the Medicare levy of 1.5% which resident is require to pay

 For financial year ended 30 June 2011 (i.e. 1 July 2010 to 30 June 2011) 

Taxable income	Tax on this income
0 to $6,000	Nil
$6,001 to $37,000	15 cents for each $1 over $6,000
$37,001 to $80,000	$4,650 plus 30 cents for each $1 over $37,000
$80,001 to $180,000	$17,550 plus 37 cents for each $1 over $80,000
$180,001 and over	$54,550 plus 45 cents for each $1 over $180,000

 

What determines whether you are a tax resident or not?

Generally, if an individual does not satisfy at least one of the four tests below, they will be classified as a non-resident for tax purpose. You do not need to satisfy all four tests. Note that these tests used by the ATO to determine your residency for tax purposes are not the same as those used by other Australian agencies for other purpose such as immigration. You can be a non-resident for tax although you are an Australian Permanent Resident and vice-versa.

These main four tests are used by the Australian Taxation Office (ATO) to determine your residency:

1) Resides test – physical presence, usual place of abode, family and business ties etc.

Example
Mark has decided that he wants to live in Australia. He has moved to Perth with his family and is looking to start up a business there. Mark is likely to be a resident for tax purpose.

2) Domicile test – your permanent home under the law

Example
Sharon has just moved to Australia and bought an apartment in Melbourne. In addition, she has also spent a substantial amount in renovating her new home.  She is likely to be a resident for tax purpose. 

3) 183 day test – whether you are in Australia for more than  183 days during the financial year either continuously or intermittently

Example
Selva is a businessman who travels frequently between Australia and his home country. He first arrived Australia on 11 August 2010 and stayed for 90 days before flying off to another country.  He arrived at Australia again on 5 January 2011 and stayed for another 50 days. Selva has stayed in Australia for 140 days for the financial year ended 30 June 2011. He is unlikely to be a resident for tax purpose under the 183 day test.

4) Superannuation test – if you are a member of the superannuation scheme established under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976

Example
Christine works for an Australian government department that entitles her to be a member of the superannuation scheme under the Superannuation Act 1990. She has requested an overseas transfer to Singapore for two years. Christine is a tax resident under this superannuation test.  

It is to be highlighted that these tests are complex and requires an in-depth understanding of the tax law to accurately determine an individual’s tax residency status. Incorrect treatment can have a significant monetary implication as you could be paying tax at the wrong tax rates. Also, you could be paying tax on all your income from all sources when you don’t have to and on the contrary you could be paying not enough tax which can attract fines and penalty from the ATO. Therefore, you want to be sure that you are paying the right amount of tax, certainly no more than you need to and not less than you have to.

We would like to speak to you if you have any questions or concerns. Contact us now for your complimentary and no obligation first meeting to discuss about your circumstances.

 

13 Jan 2011 © AscendPoint 2011

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