What Are the Australia Income Tax Rates and Brackets?
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Just because you’re living abroad, it doesn’t mean you don’t have to pay tax in Australia. If you’re not careful, you could end up paying income tax in Australia and your new home country. Understanding the Australian income tax system is as important as choosing where you live.
This guide will answer all your tax questions, including:
- What is my individual tax rate?
- How do I know if I’m an Australian tax resident?
- How do I pay capital gains tax?
- How do I minimise tax payments?
- How do I lodge a tax return?
Understanding the Australian Income Tax System
The Australian tax system is relatively simple. You pay income tax on three main streams of revenue:
- Your earnings – wages from your job and investment income
- Your business earnings – you pay corporate income taxes on profits from your business
- Your capital gains – if you raise revenue from selling an asset, such as a property
There are several tax rate thresholds applied to the individual taxpayers’ total tax revenue. If you’re an Australian tax resident, you pay income tax on all your earnings earned worldwide.
Like many countries, the Australian tax system uses a marginal tax rate. Therefore, you pay different tax percentages depending on your tax threshold or tax bracket. There are different marginal tax rates for Australian residents and foreign residents.
How Is Income Tax Calculated?
To calculate your income tax, you need to add your assessable income. This includes all your earnings from around the world – unless you’re a non-resident, in which case you only declare Australian income.
Say you earn $80,000 employment income, $30,000 from a rental property, and $10,000 capital gain from selling shares – your total assessable income is $120,000. Before applying the income tax rates, you must deduct any income-related expenses. We’ll explain allowable deductions later. For now, let’s say you have $15,000 in deductible expenses.
Your total taxable income is $105,000. This would place you in the fourth tax bracket, paying a total of $24,592.
To calculate your taxable income, follow this formula:
- Add together your total earnings
- Subtract deductions
- Apply tax rates
- Minus tax offsets
- Add Medicare Levy (if applicable)
Note: the government’s tax calculator does not include the Medicare Levy.
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Personal Income Tax Rates and Brackets
The following table is for Australian permanent residents, detailing income tax rates and brackets.
Income Thresholds | Tax Rate | Tax Payable for this income Bracket |
$0 – $18,200 | 0% | No tax payable |
$18,201 – $45,000 | 19% | 19c for each $1 over $18,200 |
$45,001 – $120,000 | 32.5% | $5,092 plus 32.5c for each $1 over $45,000 |
$120,001 – $180,000 | 37% | $29,467 plus 37c for each $1 over $120,000 |
$180,001 and over | 45% | $51,667 plus 45c for each $1 over $180,000 |
Your tax bracket consists of your total earnings after tax deductions. On top of this sum, you have to pay a 2% Medicare Levy. Moreover, if you earn above $90,001, you will have to pay an additional Medicare Levy Surcharge – unless you have private health insurance.
Remember that the Australian Taxation Office may introduce tax cuts or rises for any new financial year.
Non-Resident Income Tax Rates and Brackets
Unfortunately, if you’re not an Australian tax resident, you must pay higher income taxes. This hits low-income earners the most.
As you can see from the table below, foreign residents earning $45,001 and above pay the same tax rate as Australian residents – although they still pay more as they do not have the tax-free threshold.
On the other hand, a foreign resident earning only $30,000 a year in Australia must pay 32%. An Australian resident making the same would only have to pay 19% on $11,200. However, if you live abroad and are still an Australian tax resident, you must pay income tax on your foreign income. Seek personal financial advice about how to minimise your tax burden.
Income Thresholds | Tax Rate | Tax Payable for this income Bracket |
0 – $120,000 | 32% | 32.5c for each $1 |
$120,001 – $180,000 | 37.5% | $39,000 plus 37c for each $1 over $120,000 |
$180,001 and over | 45% | $61,200 plus 45c for each $1 over $180,000 |
How Do I Know if I'm an Australian Tax Resident?
An Australian tax resident is not the same as an Australian resident. If you were born in Australia, you are always an Australian citizen, no matter where you live now. However, if you move abroad and cut all financial ties with Australia, you’re a non-resident for tax purposes.
And the opposite is true. If you were born in another country and moved to Australia as a foreigner, you’re not necessarily a permanent resident (although you can apply). However, if you earn money in Australia – even just for six months – you count as a tax resident.
Tax residents must pay tax on all their income worldwide. Be careful; you could fall into a double taxation trap if you also pay tax in another country. Non-residents only pay income tax on any money earned in Australia.
So how do you know if you’re a tax resident or not? ATO provides four tests – if you pass any one of these, you’re a tax resident. Generally speaking, you’re a tax resident if
- You have always lived in Australia and continue to do so
- You have lived and worked in Australia for more than six months
- You have studied as an international student for more than six months
If you move away from Australia with no intention to return, for example, an Aussie expat, you have to prove to ATO that you should no longer count as a tax resident.
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How Much Tax Do I Pay as a Temporary Resident?
A temporary resident is a foreign national living in Australia for an agreed period without full citizenship. For example, expats from other countries residing in Oz could be temporary residents. The above rules apply to temporary residents too: you are an Australian tax resident if you live and work in Australia for more than six months.
Generally speaking, you must have lived and worked in the same place. If you’re travelling through Australia for six months or more, working multiple jobs, you might have to pay working holiday maker tax rates. But you won’t count as a tax resident – therefore, you won’t have to pay income tax on foreign earnings.
How Does Capital Gains Tax Fit In?
As we mentioned, you add any capital gains to your total income. Capital gains occur when you sell an asset, such as property or shares. It is generally a lump sum payment and usually pushes taxpayers into the higher income thresholds. Despite talk of capital gains tax, it is not a separate tax.
When you lodge your tax return, you must include all your income, including capital gains. Even if you have already paid payroll taxes on your employment earnings, you must include the salary as well. The ATO will calculate the company income tax you have already paid and deduct it from the capital gains tax payable.
Remember to deduct expenses from your capital gains. If you sell a property for $800,000, this isn’t your capital gain. If you paid $600,000 for the property five years ago, you have only made a capital gain of $200,000.
What About the Medicare Levy?
Foreign residents don’t have to pay the Medicare Levy. After all, if you’re not in the country, there is little practical use in paying for a medical service you cannot use. All Australian tax residents must pay a 2% Medicare Levy on top of the taxable income tax.
High-income earners must also pay a Medicare Levy Surcharge. The only way to avoid paying the surcharge is to have private health insurance or private patient hospital cover. The below table outlines the surcharge income thresholds.
Medicare Levy Surcharge Tier | Income Thresholds for Individuals | Individual Thresholds for Households | Rate of surcharge |
Tier 0 | Up to $90,000 | Up to $180,000 | 0% |
Tier 1 | $90,001 – $105,000 | $180,001 – $210,000 | 1% |
Tier 2 | $105,001 – $140,000 | $210,001 – $280,000 | 1.25% |
Tier 3 | $140,001 and over | $280,001 and over | 1.5% |
How Do I Minimise Taxable Income?
The question on every taxpayers’ lips is: how do I pay less? Fortunately, you can take a few steps to ensure you only pay what you have to.
Firstly, make sure you keep diligent notes and evidence of all your expenses. Whether it’s every receipt for work-related travel costs or proof of property maintenance fees, detailed records will help you lodge your tax return. Additionally, keeping evidence will help you prove your expenses to ATO.
Secondly, if you own an investment property, determine whether it’s an excellent idea to negatively gear. Essentially, this means you make a loss on your property income. However, it’s a popular investment strategy to reduce taxable income. Australian residents and non-residents alike can use negative gearing.
Thirdly, consider whether you’re eligible for any tax offsets. Most foreign tax residents don’t qualify for offsets – however, it’s worth checking if you are a tax resident.
Finally, speak to a financial advisor about your tax affairs.
What Deductions Are You Allowed on Taxable Income?
There’s often a lot of confusion about allowable deductions. The basic rule is you cannot deduct private expenses. You can subtract any costs that directly correlate to earning an income.
If an expense is for both private and business use, you can only deduct a proportion of it. For example, if you rent out a room in a property you live in, you can only deduct expenses for the space and facilities your tenant pays for.
So, what are the allowable deductions?
Work-Related Expenses
If you work in Australia, you’ll pay income tax on your salary. Typically, unless you’re self-employed, your employer will pay your income tax before giving you your salary. However, if you earn any other sources of income – either from shares, investment properties, or selling an asset – you need to complete a tax return.
Even if you don’t earn any other sources of income, it’s still sensible to lodge a return with your tax deductions as ATO might owe you a tax refund.
Remember, you can only deduct expenses that your workplace has not already reimbursed.
Work-related tax deductions include:
- Company motor vehicle and car expenses (the purchase and running cost)
- Travel expenses
- Clothing, laundry and dry-cleaning expenses
- Self-education expenses
- Working from home expenses
- Tools and equipment
- Union fees and subscriptions to an association
Remember that the above categories must be directly related to earning an income.
Investment Income Deductions
If you have any kind of personal investment, you need to lodge a tax return to pay your taxes. Below are the deductions you can make for your investments – whether it’s property or dividend income.
- Account-keeping fees
- Ongoing property management fees
- Paying for investment advice (for dividends and shares only)
- Interest and borrowing expenses for your home loan
- Advertising for tenants
- Council rates
- Land tax
- Strata fees
- Depreciation
- Repairs and pest control
- Insurance
- Legal expenses
Note: the property must be rented or genuinely available for rent. If ATO discovers that you have not made your best effort to rent out your property, they will not allow you to deduct expenses for an empty home.
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What Are Tax Offsets?
Unlike deductions, which lower taxable income, tax offsets reduce the tax rate. Most offsets are only available to Australian residents. ATO automatically applies Tax offsets – you don’t need to tick anything on your tax return.
Low-Income Tax Offset
The government recently announced a change in low-income tax offset, increasing from $445 to $700 in the last financial year.
- Low income earners with a taxable income less than $37,500 get an offset of $700.
- If you earn between $37,501 and $45,000, you get $700 offset, minus 5 cents for every $1 above $37,500
- If you earn between $45,001 and $66,667, you get $325 offset, minus 1.5 cents for every $1 above $45,000
This is in addition to the tax-free threshold. So, if you earned $30,000, ATO will only tax you on $11,800. However, you’re also eligible for the low-income tax offset of $700.
Low and Middle-Income Tax Offset
If you earn between $37,001 and $126,000, you will get the low and middle-income tax offset of between $255 and $1,080. This is on top of the low-income tax offset.
- Earning $37,000 or less, you get an offset of $255
- Earning between $37,001 to $48,000, you get an offset of $255 plus 7.5 cents for every $1 above $37,000, to a maximum $1,080
- Earning between $48,001 to $90,000, you get an offset of $1,080
- Earning between $90,001 to $126,000, you get $1,080 minus 3 cents for every $1 above $90,000
Using our previous example, you will get an offset of $255 and a low-income tax offset of $700.
Seniors and Pensioners Tax Offset
Seniors and pensioners tax offset (SAPTO) is available for senior Australians. For individual taxpayers, your income must be less than $32,279. The total must be less than $57,948 for combined taxpayers. The maximum offset is $2,230 for one person or $3,204 combined.
To qualify, you must be the Age Pension age – which is currently 66 years and six months. From the 1st of July 2023, it will increase to 67.
Claiming a Foreign Income Tax Offset
If you’re a temporary resident in Australia or an expat abroad, you may have paid two lots of income tax – in Australia and a foreign country. You might be able to claim a tax offset to provide relief on double taxation. For example, this applies if you pay income tax in your new country and Australia.
To claim foreign income tax offset, you must abide by the following:
- Provide evidence for paying foreign income tax
- Include the income or capital gain that you paid foreign income tax on in your Australian tax return
Unfortunately, you can only claim tax offsets after paying both lots of tax – not before.
What if I'm Owed a Tax Refund?
ATO will assess how much tax you owe when you complete your tax return. If you don’t have any tax payable, you don’t need to do anything. In some instances, ATO might owe you a tax refund. They automatically pay the refund to you.
Refunds are significant if you’re not an Australian permanent citizen. For example, if you only live and work in Australia for eight months, you’re obliged to submit a tax return. However, you might not owe any tax.
Here are the potential reasons for a refund:
- Superannuation payments for non-residents
- Working holiday tax rebates
- International student tax rebates
- If you qualify for a tax offset
Lodging a Tax Return: Step by Step
All Australian tax residents must lodge a tax return even if they live overseas. Fortunately, it’s very straightforward. Just make sure you submit your tax return between the 1st of July and the 31st of October of the following tax year.
- If you don’t already have one, you need to create a myGov account.
- Update your myGov account setting to let you sign in from overseas.
- Ensure you have an Australian bank account if you receive any refunds.
- Input all your assessable income and any deductions.
- Indicate whether you are a tax resident or non-resident – if you were only a tax resident for part of the year, you still need to declare it.
- Submit it to ATO online.
If you would prefer not to use the online system, you can also
- Lodge your tax return with a registered tax agent
- Lodge a paper tax return
- Lodge it before leaving Australia
- Or ask a friend or family member to lodge it on your behalf. You will need to apply for power of attorney if you choose this path.
Case Study: Expat in Singapore
Ben has lived in Singapore for ten years. He still has a property in Australia, so he must lodge a tax return for his Australian income. However, Ben is not an Australian tax resident – therefore, he doesn’t have to pay personal income tax on his Singapore earnings. Although, he also doesn’t qualify for any tax offsets. He must declare his earnings from his Australian property.
Ben rents out his rental property for $570 a week. Yet, he also pays $100 a week in property maintenance and other fees. He also pays an average of $400 a month in home loan interest repayments. In a typical tax return, Ben declares $29,640 net income and $26,000 deductions.
In total, his taxable income is $3,640. He’s in the lowest tax bracket. However, because is a foreign investor, he cannot claim the tax-free threshold or the low-income tax offset. He must pay $1,183.
Let’s look at the same example, but if Ben were still an Australian tax resident – would he pay less tax total?
Ben earns AU$170,000 in Singapore. Ben’s total taxable income is $199,640. He has the same $26,000 deductions in Australia and $5,000 work-related deductions in Singapore. The ATO taxes Ben on $168,640. With resident tax rates, he pays $47,463.80 in tax. While Ben is on the lower tax rate, he pays significantly more tax.
Moreover, Australian tax rates are higher than Singapore – where he only pays 18% rather than 37.5% on the same income. Ben could claim a foreign income tax offset if he pays double tax.
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In a Nutshell
Australian tax rates have some of the highest globally, particularly if you’re a foreign resident earning an income in Australia. However, as an expat, it’s usually in your best interest to cease tax residency in Australia to avoid double taxation.
A few tax offsets reduce the tax burden, but these are usually only available for tax residents. If you’re moving or already live overseas, ensure you understand your tax obligations.
Frequently Asked Questions
How Much Tax Do I Pay on $60,000 Australia?
As an Australian tax resident, you would pay $9,967 on $60,000. As a non-resident (Aussie expat living abroad), you would have to pay $19,500. Remember to deduct any income-related expenses to reduce your taxable income.
Is Australia a Highly Taxed Country?
Despite relatively high tax on high-income earners, Australia’s marginal tax rate system is relatively progressive. Low-income earners pay less tax than in many other countries.
What Is the Minimum Salary to Pay Income Tax in Australia?
Australia’s tax-free threshold is for all income below $18,201. Any income above the threshold is taxed at 19% until $45,000. Above that, you pay 32.5% until $120,000, and so on.
Foreign residents do not get a tax-free threshold. Instead, they have to pay 32% on all income between $0 and $120,000. After that, the marginal tax rate increases at the same rate as for Australian residents.
How Do I Calculate Taxable Income?
Add together your total assessable income – profits from rental property, salary, dividend payments, etc. – and subtract any income-related expenses. The total amount left is your taxable income.
How Do I Figure Out What My Tax Bracket Is?
The Australian income tax brackets start at $18,201. When you submit your tax return, ATO will calculate your tax bracket for you. Each income threshold pays a higher tax percentage on the money earned above the threshold.
What Is the Expat Tax Rate?
If you’re a non-tax resident in Australia, you must pay 32% tax on income below $120,000. If you earn between $120,001 and $180,000, you must pay 37.5%. And finally, if you earn above $180,000, foreign residents must pay 45% of their taxable income.
For the majority of home buyers, paying Stamp Duty in Australia is an unavoidable step in property ownership. It is arguably the single most expensive cost you’ll have to pay in acquiring a property, whether that be a house, vacant land or off-the-plan apartment.
So what exactly is Stamp Duty in Australia?
Stamp duty is a tax charged by the Australian states and territory governments on certain documents and transactions – the main one being property transactions.
The States collect the tax and spends it on infrastructure, public facilities, and healthcare, amongst other things.
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