Australia Tax Rate Calculator: Everything You Need to Know
No one likes paying taxes. Unfortunately, it’s an inevitable part of earning money. We pay taxes on our income, when we sell our house, and on many purchases. But tax rates can get complicated. How much tax should you pay based on your income? And how does this differ for foreign income? What about if you live abroad but sell an Australian property?
We’ll answer all your questions and more in our comprehensive guide on Australian tax rates.
How Does Australian Tax Work
Let’s start with the basics. The Australian Tax Office (ATO) collects income tax from working Australians every financial year. An Australian income year lasts from 1 July to the following 30 June. Currently, we are in the 2021-2022 financial year. While tax rates haven’t changed since 2017, ATO could potentially raise or lower them each year.
Income tax rates are different for foreign residents. It’s worth noting that “foreign resident” in this instance doesn’t mean a non-Australian. Instead, foreign residents are anyone who doesn’t pay regular income tax in Australia. You have to undertake a test to prove you’re not an Australian tax resident.
Income Tax
Australian income tax is the rate ATO charges you based on your base income. Say you have a yearly salary of $50,000. ATO taxes you on 32.5%. Your tax rate depends on how much you earn. The more money you bring in each year, the higher the tax rate. But only for the amount above the threshold – which is $45,001. Confusing? You’ll see what we mean later.
Most employers calculate your income tax for you and give it to ATO before you even see it. However, for those who earn more than one income, sell a property, or invest (among other things), you’ll need to pay your Australian income tax yourself. This requires a tax return with all your taxable income and tax offsets.
If you’re an Australian resident for tax purposes, then you pay income tax on all your earnings, whether it’s Australian income or not. If you live and work in Singapore but remain an Australian tax resident, you will pay Australian income tax on your Singapore earnings.
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Medicare Levy Surcharge
On top of your general taxable income tax, you might need to pay a Medicare Levy Surcharge. All Australian taxpayers commit 2% of their taxable income to the Medicare Levy, no matter their income bracket. This is on top of income tax.
Those earning less than $23,226 do not have to pay the Medicare Levy. If you earn less than $29,033, the levy is lower. On the other hand, if you make more than a certain income ($90,001) and don’t have private health insurance, you must pay the additional Medicare Levy surcharge. The surcharge is either 1%, 1.25%, or 1.5% of your total net earnings.
Capital Gains Tax
Taxpayers must add capital gains tax to their income tax. If you sell a property for a capital gain of $50,000, you must report it in your tax return. ATO adds this to your regular taxable income. In all likelihood, capital gains will push you up into the next tax bracket unless you’re eligible for exemptions.
If you’re a foreign resident selling property, the purchaser withholds 12.5% of the property value for ATO. You can claim the withheld amount back when you lodge your tax return.
What Is Included in Assessable Income?
Assessable income refers to the amount of money you earn that you pay tax on. You must declare all your assessable income on your tax return each year.
Employment Income
Employment income refers to any money you receive for working, whether full-time, part-time or casually. For example:
- Salary, wages, commission, bonuses, parental leave payments, and more.
- Employer allowances include a company car, travel expenses, or food expenses.
- Other income from your workplaces, such as tips or discounted employee shares.
- Lump-sum payments, such as unpaid holiday leave.
Super and Annuities
If you receive regular income from your super fund or annuities, you may need to pay tax. You must detail reportable super contributions as, in some instances, ATO might owe you a tax refund.
Government Payments
Payments like carer benefits or the Age Pension must go on your tax report. Although you don’t pay tax on some government payments, it still has to be reported as it could affect tax offsets or other benefits.
Investment Income
- The interest from savings or investment accounts
- Managed funds share dividends and returns
- Investment property rental income
- Capital gains from selling an asset, e.g. property
Foreign Income
If you’re an Australian tax resident, you must declare overseas income – even if you have already paid tax on your earnings elsewhere.
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Who Pays Tax?
All Australian residents above the tax-free threshold must pay income tax. The tax payable depends on your marginal tax rate.
As an Australian expat, you’re counted as a tax resident unless you can prove you have no intention of returning to Australia. Several tests are available to prove you’re not an Australian resident anymore. However, even if you’re not an Australian tax resident, you still must pay tax on any Australian income, such as rent or selling an Australian asset.
Resident Tax Rates 2021–22
- If you earn 0 – $18,200, you don’t have to pay any tax
- If you earn $18,201 – $45,000, you have to pay 19% – 19 cents for each $1 over $18,200
- If you earn $45,001 – $120,000, you have to pay 32.5% – $5,092 plus 32.5 cents for each $1 over $45,000
- If you earn $120,001 – $180,000, you have to pay 37% – $29,467 plus 37 cents for each $1 over $120,000
- If you earn $180,001 and over, you have to pay 45% – $51,667 plus 45 cents for each $1 over $180,000
The above doesn’t include the Medicare Levy. Australian residents can reduce their tax bill with the Low Income Tax Offset (LITO) or the Lower and Middle Income Tax Offset (LMITO).
Foreign Resident Tax Rates 2021–22
The marginal tax rate differs if you’re a non-resident.
- If you earn 0 – $120,000, you have to pay 32.5 cents for each $1
- If you earn $120,001 – $180,000, you have to pay $39,000 plus 37 cents for each $1 over $120,000
- If you earn $180,001 and over, you have to pay $61,200 plus 45 cents for each $1 over $180,000
Foreign residents’ tax rates are far higher with no tax-free threshold.
Working Holiday Maker Tax Rates 2021–22
A working holiday maker or temporary resident also must pay tax.
- If you earn 0 – $45,000, you have to pay 15 cents for each $1
- If you earn $45,001 – $120,000, you have to pay $6,750 plus 32.5 cents for each $1 over $45,000
- If you earn $120,001 – $180,000, you have to pay $31,125 plus 37 cents for each $1 over $120,000
- If you earn $180,001 and over, you have to pay $53,325 plus 45 cents for each $1 over $180,000
What Can I Deduct From Tax?
If you’re paying tax on your salary, you can deduct any work-related expenses. However, you must have evidence to prove:
- You spent the money yourself and didn’t get reimbursed
- The costs relate directly to earning your income
For example, you can deduct self-education expenses if they directly relate to your current employment. However, you can’t claim deductions for government assistance to take any course, such as the Higher Education Loan Program.
Typically, a receipt will do. The same tax deduction rules apply to other forms of income. If you rent out an investment property, you must show evidence to prove that any expenses were directly to do with the upkeep and maintenance of the property.
Other deductions:
- Accounting expenses – when related to your tax affairs
- Gifts and donations
- Interest charged by ATO
- Interest, dividend and other investment income deductions – such as rental property management fees or interest on your home loan repayments
- Personal super fund contributions
- Income protection insurance
If you’re unsure about tax deductions, seek personal financial advice.
How to Calculate Tax
The government website has a tax calculator. Alternatively, you can follow our steps.
- Calculate your assessable income: this includes any money earned in Australia (capital gains and salary). If you’re an Australian tax resident, it means any income earned worldwide.
- Subtract your expenses: any costs incurred while making money – from work travel expenses to tenant advertising costs.
- You have your total taxable income for that financial year.
- Apply tax rates: which tax bracket are you in? This is your gross tax payable.
- Subtract tax offsets: any offsets, such as the middle-income tax offset. This is your net tax payable.
- Include the Medicare Levy. Remember, if your taxable income is above $90,001, you have to pay a surcharge. Unless you have sufficient private health insurance and private patient hospital cover.
- Finally, subtract any tax credits and refundable offsets. You now have your total amount owed or due to be refunded.
Lodging a Tax Return
If you earn any income in Australia, it’s worth lodging a tax return. Even if your income is significantly lower this year, you might get a refund.
While the tax year runs from 1 July to 30 June, you have until October of the same year to lodge your return. It’s straightforward; you can do it online.
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Example Calculation
Juliet is an Australian expat with an investment property in New South Wales. She lives in Hong Kong but rents out her Australian property for $600 a week. As a non-resident, she doesn’t have to pay Australian tax on her worldwide income, nor does she need to pay the Medicare Levy.
Her total Australian taxable income is $31,200. Juliet deducts all her property-related expenses, including maintenance fees, advertising costs, home loan interest payments, and accounting charges.
In total, she deducts $15,000, leaving her with $16,200 – in the lowest tax bracket. However, because she is a non-resident, Juliet does not qualify for the tax-free threshold. Therefore, Juliet has to pay 32.5 cents for each $1. Her total tax payable is $5,265.
When Juliet sells the property, she must add her capital gains to her income tax.
Bottom Line
Calculating the exact amount of tax owed is straightforward. However, trying to work out what is deductible and what is not can get confusing. As a foreign resident for tax purposes, you have no tax free threshold and are not eligible for most tax offsets. Yet, you must still lodge a tax return for all Australian income.
Frequently Asked Questions
The government has a tax calculator to use. The general formula is all worldwide income (unless you’re a non-resident), minus income-related expenses equal assessable income. Then apply any tax offsets. Include the Medicare Levy if applicable.
Foreign residents earning up to $120,000 must pay 32.5% tax. Those earning between $120,001 – $180,000 must pay 37%. Finally, foreign residents earning more than $180,001 must pay 45%.
Foreign residents pay higher tax rates than Australian permanent residents. The tax rates apply for all income earned in Australia. If you’re an Australian tax resident, you pay a lower tax rate but on all revenue earned worldwide.
Tax offsets reduce the amount of tax payable on your income, for example, salary sacrifice or CGT exemption. On the other hand, tax deductions reduce the amount of taxable income. Both minimise the amount of tax you pay.
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