You may have comprehensive knowledge about the Indian Income tax system and rates. But are you aware of the tax systems of other countries? In particular, Australia is known to be the most taxed country in the world. But how much of that is true? Let’s find an answer to that question in this article.
The federal government imposes income tax in Australia for individuals and corporations. Individuals in Australia should pay income tax at progressive rates. Australian Tax Slab denotes the amount of tax you are liable for in Australia. Tax on partnerships is done on the distribution of income to the partners. Income tax is the most crucial source of revenue for the Australian government. The Australian Taxation Office collects income tax on behalf of the government.
The Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 run the income tax system in Australia. The former gradually rewrites itself into the latter. Your taxable income is the difference between your assessable income and allowable deductions. There are three main types of assessable income for individuals: personal earnings (such as salary and wages), business income, and capital gains.
In Australia, the financial year runs from July 1 to June 30 of the following year.
You are liable to pay taxes in Australia based on the Australian Income Tax Rates. Similar to other countries, Australian Tax slabs suggest more tax for high-income people and less for people in low-income brackets.
Come on, let us dive deep into the Australian income tax rates and taxation system in this article.
How Is Tax Calculated in Australia?
In the beginning, know the calculation of tax in the country. It helps in a better understanding of the other tax systems.
The most significant source of revenue for any government is income tax. The Australian tax system consists of three main pillars:
- Personal earnings
- Business earnings
- Capital gains
You are liable to pay income tax if your annual income exceeds a threshold limit across all your income sources. It includes your salary, profits from your business, and returns from your investments. You should also pay income tax when you sell your house or shares.
Australia has a progressive tax system, which means the higher your income, the more tax you pay.
You are not liable to pay tax in Australia if your income is up to $18,200 in a financial year. It is the tax-free maximum limit. Any penny you earn more than this is liable for tax.
Tax rates for residents in 2021/22 and the 2022/23 years are (Note: these rates do not include the Medicare levy):
| Taxable income $ | Tax payable $ |
| 0 – 18,200 | Nil |
| 18,201 – 45,000 | Nil + 19% of excess over 18,200 |
| 45,001 – 120,000 | 5,092 + 32.5% of excess over 45,000 |
| 120,001 – 180,000 | 29,467 + 37% of excess over 120,000 |
| 180,001+ | 51,667 + 45% of excess over $180,000 |
The lowest tax rate is 19%, and the highest is 45% for income over $180,000. Most Australians fall in the middle bracket of the tax slab.
If you contribute to superannuation and earnings, you are liable to tax for that too. There are several other tax benefits to paying money into your fund.
In addition to this, you are also liable to pay Medicare Levy. It is an extra amount you should compensate in addition to your tax.
The Medicare levy helps fund some of Australia’s public health system, known as Medicare. The Medicare levy is 2% of your taxable income.
You may get an exemption from the Medicare levy depending on your and your spouse’s income and circumstances. Consider your eligibility for a reduction or an exemption separately. As soon as you file your returns, your medicare levy gets calculated.
You can lodge your tax return anytime after June 30, and the actual deadline for self-lodgement is the 31st of October. Though you can self-lodge, it is best to go through a tax agent to ensure everything is filled out correctly and you receive the best return possible promptly.
However, you have few income sources that are not liable for tax in Australia. What are they?
What Is Non-taxable Income in Australia?
Non-taxable income is income that is exempt from taxation (tax-free).. However, you should add these incomes when filing your returns for use in other tax calculations.
Non-taxable income includes:
- some of the government pensions and payments, including the invalidity pension
- some education payments.
If you only receive any of this non-taxable income in a financial year, you need not pay any income tax. Other than this, you have a question about how much tax you pay with your Australian salary. The answer to this is below.
How Much Tax Do I Pay on My Salary in Australia?
You are liable to pay tax based on the tax slabs mentioned above.
Let us know this in detail with an example,
If you make $50,000 a year living in Australia, you will be taxed $7,717. That means your net pay will be $42,283 per year or $3,524 per month.
Salary $50,000
Income Tax – $6,717
Medicare – $1,000
Total tax – $7,717
Net pay * $42,283
Does this show the tax rates in Australia are higher? Maybe. But let’s find out why it is this much higher in Australia.
Why Is Australia So Heavily Taxed?
The main reason Australia is so heavily taxed is because they don’t pay separate social security taxes. The Australian government funds social security systems from general revenue. Other countries levy specific taxes to fund social security systems. Due to this, taxes in Australia are higher compared to other countries.
Yet, you would feel happy if you could save taxes in Australia, right? We have got you. Figuring out the ways to save on your taxes in Australia.
How Can I Save Tax in Australia?
There are several ways in which you can plan your taxes and save your money.
- Invest in long-term instruments like borrowing money to buy residential property, businesses, and shares.
- Modify your home and investment loans to turn non-tax deductible debt into tax-deductible debt so you can pay them off sooner.
- Salary package your car lease, superannuation, laptop, and more to increase your take-home pay.
- Keep Accurate Tax and Financial Records
- Claim all deductions.
- Minimize your Taxes with a Mortgage Offset Account
- Get Private Health Insurance
- Don’t include non-taxable income
Follow these strategies and save on your taxes in Australia. Thank us later for giving you fool-proof ways to save taxes.
FAQs: Australia Income Tax Rates
1. Is income tax high in Australia?
Yes, the income tax is comparatively higher in Australia compared to other countries. It is because of social security taxes imposed.
2. How does Australia’s taxation system compare to the USA?
Australian income tax rates are relatively high compared to the US, at 0%-45%. In 2014, Australians paid an average of $17,146 per capita, while Americans paid $14,115 per capita. So, on average, Australians pay about $3,000 more than Americans a year.
3. How can I file returns in the Australian tax system?
You should lodge your returns anytime after June 30, and the exact deadline for self-lodgement is the 31st of October. You can file returns online and also through tax agents.
4. Is Australia the highest-taxed country in the world?
The tax burden in Australia is 28.68%. The tax rates vary in different countries. In some countries, there is no personal income tax, while in other countries it can be as high as 50%.
Bottom line
You might be familiar with Australian income tax rates and slabs from the above article. The tax rates in Australia are progressive. And 2% of the Medicare tax is mandatory for everyone. You can choose to save your taxes too by following the tax-saving instruments. However, the Australian tax is higher compared to other countries.
Still, if you have any doubts regarding taxation in Australia, feel free to contact us.