A Guide to Australia’s Taxation System

Date published: 2020-10-19   — by Celestine Loh

australia taxation system

Australia’s taxation system has been recently revised. Overseen by the Australian Tax Office (ATO), before doing business in Australia, it is important to know the general business and personal tax rates in order to ensure a smooth financial process for you and your business.

Read on to find out the types of taxes and Australia’s taxation system.

For the filing of personal and corporate income taxes, Australia’s system follows the financial year calendar, beginning on 1st July and ending on 30th June the following year. Additionally, corporations can choose to follow the classic calendar year from 1st January to 31st December instead. The taxation rates under the Australian tax systems are applicable for both Australians and foreign residents working in Australia. 

Corporate Tax Rates 

CORPORATE INCOME RANGE

TAX RATE

All Australian Companies*

Federal tax rate of 30%

*Small Business Companies (with an annual turnover below AUD 50 million) 

27.5%

 

Personal Income Tax Rates

PERSONAL INCOME RANGE

TAX RATE

Up to AUD 18,200

0%

AUD 18,200 to AUD 37,000

19%

AUD 37,001 to AUD 90,000

32.5%

AUD 90,001 to AUD 180,000

37%

AUD 180,001 and above

45%

Medicare levy and surcharge

Most people pay a Medicare levy, which is 2% of your taxable income. The levy is charged as part of your yearly income tax assessment. If you’re on a lower income, this may be reduced, or you may not have to pay it at all. If you’re on a high income, you may have also to pay a  surcharge of between 1.0 and 1.5% of your taxable income. This depends on your level of private health insurance and how much you earn.

Taxable income

Your taxable income is the income you need to pay tax on, minus your tax deductions and offsets.

Income that is taxable

Income that you must pay tax on includes money from:

  • employment
  • pensions and annuities
  • most government payments
  • investments
  • capital gains
  • income from trusts, partnerships or businesses
  • foreign income

Non-taxable Income 

You do 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 super co-contributions

Tax deductions

Tax deductions reduce your taxable income.

Common tax deductions include:

  • work-related expenses
  • self-education expenses
  • charitable donations
  • accountant fees

Tax offsets

Also known as rebates, tax offsets directly reduce the amount of tax payable. They are applied after the tax has been calculated.

Common tax offsets include offsets for:

  • low-income and middle-income earners
  • taxpayers with a invalid relative
  • pensioners and senior Australians
  • the taxable portion of a superannuation income stream

Salary packaging

Salary packaging is when you ‘package’ your income into salary and benefits. For example, you may arrange to receive less salary in exchange for superannuation or car payments.

If you package  your salary, you can reduce your taxable income.

This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

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READ MORE: A Guide to Singapore’s Taxation System

FURTHER READING: E-sign laws Singapore

Tags: Australia | Corporate Tax | legal | personal tax | tax | z-syndicate | zegal

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