A Filipino’s Guide to Australia’s Taxation System (Part 1)
Australia is considered as one of the highest-taxing countries in the world. But having ranked second on the quality-of-life index, this should come as no surprise. From job security to life expectancy to gender equality, Australia is known to offer the best chances of having a prosperous, safe, and happy life.
You will find the taxation system in Australia very different from the one we have in the Philippines. So whether you’re just making plans or have already migrated to Australia, it important that you understand the country’s taxation system.
Australian Taxation 101
In one of our previous posts, we discussed the process for applying a tax file number if you’re a Filipino. In this post, we will tackle the things you need to know about paying taxes in Australia. We’ll try to answer the most commonly asked questions with regard to taxation—and if you still have questions left unanswered at the end post, don’t hesitate to drop us a comment!
How do I pay my income tax?
The main tax you’ll pay in Australia is income tax. This will be charged on your received income, such as salary, investment income, and business income. If you’re employed, your employer will most likely deduct a portion of your salary or wages for income tax. At the end of each financial year, which is on June 30, your employer will provide you with a ‘payment summary’. The payment summary will show you how much you’ve earned and how much was taken for your income tax. You will need the payment summary to lodge a tax return with the Australian Tax Office.
How much will I be charged?
Your income tax rate will depend on the following:
- Whether You Have a Tax File Number (TFN)
- Your Tax Residency Status
- Your Income
Tax Residency Status
One of the factors that will determine how much tax you’ll pay is your tax residency status. You need to work out whether you are an Australian or foreign resident for tax purposes. Take note that the basis of determining your tax residency is different from the ones used by the immigration.
What difference does your tax residency have on your taxes?
- Tax rates for Australian residents are generally lower.
- Australian residents are mostly taxed on their worldwide income.
- Foreign residents are usually taxed on their Australian-sourced income.
How will you know you tax residency status?
Tax File Number (TFN)
As we’ve stated in our previous blog post, you don’t need a TFN to be able to work in Australia. However, working without a TFN will subject you to higher taxes. Without a TFN, your employer will deduct the maximum tax rate from your income. You will be able to claim the excess amount later when you lodge your income tax return—but why go through all those inconveniences? After all, applying for a TFN in Australia is pretty straightforward.
Individual Income Tax Rates
Your income is the biggest factor that will determine your income tax rates. Much like in the Philippines, each income bracket is taxed differently. The following rates apply from July 1, 2014.
The Australian Taxation Office has several tax calculators available on their website to help you calculate your income tax.
Simple Tax Calculator – helps calculate the tax on your taxable income
Comprehensive Tax Calculator – takes into account tax offsets, tax credits, Medicare levy, and higher education loan scheme repayments to give you an estimate of your tax refund or debt.
Tax Withheld Calculator – calculates the amount your employer is required to hold from your salary or wages.
In our next Taxation 101 post, we’ll be discussing how you can lodge your income tax return.