When working in Australia you must pay tax to the Australian Taxation Office (ATO). The tax is taken directly from your paycheck each pay. The Australian tax system is sometimes difficult to understand and filing your tax declaration raises some questions especially with the recent changes in law.
In order to be clear as possible and find any special tips, we contacted a tax agent who provided us with accurate information on taxes when working in Australia.
The tax system in Australia
In order to work in Australia, you need to have a Tax File Number (TFN). This number is your identification with the ATO. As soon as you arrive in Australia, you should apply for your TFN as you will need to provide it to your employer when starting a new job.
Everyone living and working in Australia must declare their income. The amount of hours worked and the type of visa you are on do not matter.
This tax is collected directly from each salary you receive. It appears on your paychecks, usually under the title of “PAYG Withholding“.
A tax return is a form you complete online, on paper or get a tax agent to help you with, that tells the Australian Taxation Office:
- how much money you earn during the financial year
- if you are claiming any deductions.
The Australian financial year runs from 1st July to 30th June each year. Tax returns can be lodged any time from 1st July to 31st October, for the previous financial year. If you do not lodge your tax return within this time frame, you may cope a penalty.
Do you need to lodge a tax return?
You must lodge a tax return if any of the following apply to you. You:
- had tax withheld from any payments (such as wages) made to you during the income year
- are an Australian resident and your taxable income was more than the tax-free threshold ($18,200)
- are a foreign resident and you earned more than $1 in Australia during the income year
- You are leaving Australia forever or for more than one income year
- wish to claim any tax deductions.
There is not need to lodge an Australian tax return if:
- you are a foreign resident and your only Australian-sourced income was interest, dividends or royalties and you paid the correct amount of non-resident withholding tax
- you are a working holiday maker (417 or 462 visa holder) and your taxable income for the year is less than $45,001.
Tax rates for Holiday Visa Makers
Working holiday visa makers (subclasses 417 & 462) are under a specific tax system. Working holiday visa holders are taxed on a progressive tax scale without the benefit of a tax-free threshold (for most of them – see below).
Normal rate fro WHV Makers
For tax purposes in Australia, individuals will be either:
- an Australian resident
- a foreign resident
For most backpackers, whether you are an Australian or a foreign resident for tax purposes does not affect the rate of tax you pay. Indeed, working holiday visas makers are taxed at 15% up to the first $45 000 earned.
Companies must register as employers of working holiday makers by completing a specific form. Make sure that your employer is registering you as a working holiday visa maker otherwise you will be taxed 32.5% (foreign resident rate).
The following rates apply to working holiday maker income regardless of residency for tax purposes (rates 2021-2022)
|Taxable income||Tax on this income|
|0 – $45,000||15%|
|$45,001 – $120,000||$6,750 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||$31,125 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$53,325 plus 45 cents for each $1 over $180,000|
The only exception to this is if you are both:
- an Australian resident for tax purposes
- from a non-discrimination article (NDA) country.
Specific rate for WHM from NDA country
On 3 November 2021, in Addy v Commissioner of Taxation  HCA 34, the High Court has found that the ‘backpacker tax’ is not in accordance with Australia’s treaty obligations with the United Kingdom, violating the non-discrimination article (Article 25(1) of the UK DTA)
Therefore, some WHMs may be eligible to be taxed on the same basis as a resident Australian national.
To be eligible, you must be:
- considered an Australian resident for tax purposes and
- from an NDA country (Chile, Finland, Japan, Norway, Turkey, the UK, Germany or Israel).
For those concerned, it means that when you lodge an income tax return you may be taxed on the same basis as a resident Australian national and benefit from the th
The Tax rates for residents and non residents
The tax rates in Australia are variable and depend on the status of the taxpayer. Residents are taxed at 19% while non-residents are taxed at 32.5%. Those rates apply to people with a student visa, sponsorship, permanent residency, etc.
Tax Rate – Residents 2021-2022
|Taxable income||Tax on this income|
|$18,201 – $45,000||19c for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5c for each $1 over $45,000|
|$120,001 – $180,000||$29,467 plus 37c for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45c for each $1 over $180,000|
You are considered a resident of fiscal point of view after living 6 months in the same place in Australia (not necessarily to the same address, but in the same geographical area or in the same city, Sydney and the surrounding area for example) provided that you are able to prove it. To declare you as a resident from a taxes point of view, residents are taxed less than non-residents, the first level of taxation for residents is at $18,200.
This means that if you earn less than the $18,200 threshold and have been in the same place for 6 months, you will get all of your tax refunded.
Tax Rate – Foreign Residents 2021-2022
|Taxable income||Tax on this income|
|0 – $120,000||32.5 cents for each $1|
|$120,001 – $180,000||$39,000 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$61,200 plus 45 cents for each $1 over $180,000|
The principle of Tax return / tax back
It is possible to recover some of the taxes you have paid to the state in some cases. But it is not systematic! Your taxes are calculated on an annual basis while you are taken from each pay. So it seems normal that there is an adjustment at the end of the year. Remember that the principle of Tax return/tax back works both ways. You may as well get your money back if your status allows, or duty to the State if the government considers you paid less tax than you need to.
As a result of the Addy decision, if you visited Australia on a working holiday visa (417,462) between 2017 and 2020, it’s likely that you will be entitled to a significant tax refund.
Resident or Non-resident:
If you change the status in the course of the tax year, you will not be taxed in the right proportions. The “resident” or “non-resident” status is the most important criteria impacting the tax return / tax debt (owing money to the ATO):
SCENARIO 1: You are “non-resident” on your employment contract, and “resident” on your tax return: you have paid too much tax. If you earned less than $18,200, you get back 100%.
SCENARIO 2: You are “resident” on your contract, and “non-resident” on your tax return: you have not paid enough taxes. You have to repay the difference (the notice is usually quite salty!).
SCENARIO 3: You are “non-resident” on your employment contract and “non-resident” on your tax return: you have paid your taxes in the right proportion. The state owes you nothing and you owe no ATO either.
SCENARIO 4: You are “resident” on your employment contract and “resident” on your tax return: generally, your employers will tax you more than they should. You will get some of your taxes (or even all of your taxes) if you earned less than $ 18,200 over the year.
Note: Please note that these examples are theoretical. The government does, in fact, make random checks and sometimes there are (good or bad) surprises.
Other things to consider
In the course of the year, you will have certainly contributed to Medicare.
The calculation of your taxes is annualised, therefore you pay your taxes each pay. It is, therefore, appropriate to make an adjustment at the end of each fiscal year. If you have not worked a full year, for example, you should get some of your taxes back.
If you have made purchases related to your work such as equipment (safety shoes, equipment …) or you paid transport costs to get to a place of work to another, you can deduct those costs from your taxes. Also remember that you can claim the costs of certificate and training done in Australia for work purposes. It is important to keep the documents that prove the costs (receipts, tickets …)
Lodge your tax return in Australia
You have to lodge your statement between 1st of July until 31 October every year. Beyond this period, penalties may be applied (unless you go through a tax agent).
If your visa expires before the end of the fiscal year, or you plan to leave the country before June 30, you can make an early statement. To do this, follow the steps explained on the ATO website concerning lodging your tax return early.
To make your statement, you have two possibilities: do it yourself or hire a tax reporting agent.
Documents you need to lodge your tax declaration
The documents needed to make your tax return are:
- The final payslips of PAYGs OR (also called Group Certificate or Statement of Earnings). These two documents provided by your employer, show your wages and taxes levied on these salaries. It is essential to be in possession of your PAYGs provided by each employer.
- Your TFN
- Full name, postal address, telephone number, your employers AMRO
- All your payslips
- Documents (receipts, bills…) capable of an expense report serves as proof of expenses incurred in the work environment (clothing, tools …) called “Work-related expenses”.
Lodge your tax return by yourself
THROUGH THE ATO WEBSITE :
1. Create a MyGov account on the ATO website and download the Mytax or E-Tax software according to your status. Install it on your computer. Open the software and follow the steps.
2. Open the software and complete your tax returns. A step by step guide is available to help you through the process.
GOING TO AN ATO OFFICE :
You can also meet at the ATO Office in your city to lodge taxes on site. Attention, it is not necessarily easy to go directly to the ATO. Counsellors are not always available to help you and do not necessarily give you the best tips to fill your statement!
Hiring a tax agent
If you do not feel comfortable doing it yourself, do not panic. You can hire a tax agent who will go through the process for you. If you have any doubts, your status is not entirely clear or in-between, or that you have large sums to potentially recover, it may be a good way to not take risks.
Caution: If you want to get some of your taxes paid to the state, it is important to follow the steps listed and to present all the necessary documents. Provide PAYG sheets for each of your employers in your statement, make sure not to leave a job without your payslips and keep them carefully. If you choose to make your return by yourself and you make a mistake on your statement, you risk an ‘audit’. It is then very difficult to go back and refund the chances are very low.
– Updated on 06 June 2022 –