How to arrive and

Personal tax rates

Income tax is paid on all salary and wages in Australia and on any other form of income. Your employer deducts the tax amount from your pay and sends this tax payment to the Australian Taxation Office (ATO). Other income such as investment and interest income on bank accounts must be declared on your personal annual tax return. Tax obligations are calculated for each fiscal year. In Australia this is from 1 July to 30 June. Income tax returns must be lodged by 31 October for that tax period. The tax form is delivered to all households at the end of June each year. It is also available for free from newsagents. Your employer(s) should provide you with a Payment Summary at the end of the financial year showing your earnings and tax deductions during the tax year. This Payment Summary must be included with your tax return.

When you start work with a new employer you must complete a Tax File Number (TFN) declaration. Your employer will give you a form to fill in. If they do not, contact the ATO for a copy. The information you provide on this form is used to determine how much tax you should pay. The declaration will ask for your Tax File Number. If you do not quote this number, tax will be deducted at the highest rate, which will be much more tax than you need to pay. When you start a new job, you will have 28 days to provide your TFN before tax is deducted at the highest rate. If you have already applied for a TFN, tick the relevant box on the TFN declaration.
All tax matters in Australia are handled by the Australian Tax Office (http://www.ato.gov.au) and at present the tax rates for individuals are as follows:
Tax rates for 2014-15

Taxable income	Tax on this income
$0 – $18,200	Nil
$18,201 – $37,000	19c for each $1 over $18,200
$37,001 - $80,000	$3,572 plus 32.5c for each $1 over $37,000
$80,001 – $180,000	$17,547 plus 37c for each $1 over $80,000
Over $180,001	$54,547 plus 47c for each $1 over $180,000

The above rates do not include the Medicare levy of 2%.
The top marginal rate of 47% is eye-catching (it used to be higher), but the above table should be studied with care. Your first A$37 000 only attracts A$3572 in tax, which equates to an effective 9.65%. Even you earn just under A$80 000, the tax amount deducted equates to only 21,9%. It’s only when you gross A$180 001 and over that the 45% figure becomes an issue. The vast majority of people in Australia earn less than A$75 000 a year. The average person earns in the region of A$40 000 annually.
Australia has a number of Double Taxation Agreements with a number of other countries. These agreements mean that tax is imposed only by the country of residence of the taxpayer. However, the country of the source of the income may impose some withholding taxes on items such as dividends, interests and royalties. You will generally be considered a resident of Australia for tax purposes if: you do not have a permanent place of abode outside Australia AND you spend 183 days or more in any one tax year in Australia. Australia taxes its residents on their world-wide income.

Other taxes and tax relief

From July 2000, General Sales Tax (GST) replaced a number of wholesale sales taxes which penalised manufacturers and exporters. GST is charged at a flat rate of 10% and is levied on the supply of goods and services. There are some exemptions in relation to the supply of certain goods and services, but these are few and far between. GST is essentially a value-added tax, which means that tax is paid at each step along the chain of transactions involving the goods or services until the end user is reached. In many other countries this same tax mechanism is called value-added-tax or ‘VAT’. Ultimately it is the consumer who pays this tax. GST-registered suppliers claim an input tax credit (a GST refund) for the GST component of goods and services acquired in the course of their carrying out their business. There is very little way to avoid GST.

Australia has a complicated tax regime. Individuals often find that their income is taxed at very high rates compared to many of Australia’s trading partners. The business environment is based on the British system of law with investment markets being well regulated and transparent.
To make the most of your potential income (either as an individual or as a corporation)and to structure your finances as tax-efficiently as possible, you will need to understand Australian income tax law. Australian tax law does provide some areas of tax relief. Briefly these are:

1. Your principal residence (owned or mortgaged) is exempt from Capital Gains Tax (CGT). The property can be held in single or joint names and there is no upper limit on the sum invested. Significant wealth can be achieved by choosing a well located home or by improving a home through renovation. Prudent Australians organise their long-term investment strategy around a planned downsizing of their family home once their children have left the home and/or when they reach retirement. This strategy releases a realised profit on the home that is tax free cash that can be invested in other income-deriving investments.

2. Superannuation is the government's preferred long term savings vehicle but it is highly regulated and there are upper limits on the tax concessions. However new residents who are within, for example, ten years of reaching retirement age can achieve impressive results by using an ‘undeducted contributions’ superannuation strategy. This type of investment strategy requires specialist knowledge provided by a qualified advisor who has years of experience

3. A number of tax concessions apply to small business operators. The most significant of these relates to how the proceeds of the sale of a business are taxed. This is an area of business planning that requires appropriate advice and a clear business strategy designed around building up a business for sale.

4. Capital gains applicable to the sale proceeds of investments, non residential property and other assets held in an individual’s name cannot exceed 23.5% (excluding health insurance levies). Strategies based around building wealth via capital gains are therefore preferable to generating a high income when seen from an overall long-term point of view. Care must be taken when designing investment strategies that result in regular capital gains.

The Australian Tax Office has the ability to classify some individuals as ‘traders’ and that will effectively tax any derived gains as income which are taxable at the highest marginal rate of 47%. Australian tax law provides no tax relief for those who borrow to invest in their family home. Tax relief does apply if you borrow to invest in income producing investments.

People who have existing superannuation entitlements held in countries other than Australia will need to get expert advice because special tax relief applies to some monies transferred into an Australian Superannuation fund within six months of becoming an Australian resident. Those who elect to leave their entitlements overseas need to understand that monies held in a non-employer sponsored superannuation fund will be subject to Australia’s Foreign Investment Fund tax laws that tax any accumulation as income each year.
Key elements of Australian tax law may cause significant tax disincentives for former British residents living permanently in Australia who leave their pension entitlements in the UK. The issue with this legislation is to tax the growth of pension funds from the date Australian residency is taken up, until funds are transferred to a complying Australian superannuation scheme. However, the tax charge is waived in the first six months of your residency in Australia, so it is often a case of ‘the sooner the transfer, the better’. On a positive note, there are major financial advantages to be gained by transferring your funds to an approved Australian fund as soon after your arrival as possible. The reason being that Australian funds enjoy preferential tax treatment both during the investment phase and even in retirement. Whilst not everyone should transfer his or her UK funds, everyone should know whether to or not. Specialist advice on this subject is recommended.