Taxation of individuals

A resident individual is subject to Australian income tax on a worldwide basis, i.e. income from both Australian and foreign sources (except for certain foreign income and gains of temporary residents.

A non-resident individual is liable to Australian income tax only on income (other than interest, royalties, and dividends, which are generally subject to withholding tax [WHT]) derived from sources in Australia, and certain statutory income that is taxable on a basis other than source (e.g. certain capital gains).

Australia has no surtaxes, alternative, or other income taxes on personal income.

Personal income tax (PIT) rates

The following tables set out the PIT rates that currently apply to resident and non-resident individuals for the year ending 30 June 2023. These rates and thresholds are planned to continue until 30 June 2024. 

From 1 July 2024, a revised phase of tax cuts has been legislated to take effect. Under the new tax rate schedule the 19% marginal tax rate will be reduced to 16% and apply to taxable income between AUD 18,200 and AUD 45,000, a 30% marginal tax rate will apply to taxable income between AUD 45,000 and AUD 135,000, a 37% marginal tax rate then will apply up to AUD 190,000 after which the top marginal tax rate of 45% applies. 

Residents

The following table applies to the 2022/23 and 2023/24 financial years, i.e. until 30 June 2024.

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Note: This table does not include the Medicare levy of an additional 2% of taxable income, which applies to most residents. An additional Medicare levy surcharge of between 1% and 1.5% applies to certain higher income taxpayers not covered by health insurance for private patient hospital cover. Special rates apply to unearned income of children below the age of 18 years at year end where that income is more than AUD 416.

In addition, the above table does not include tax offsets, including the Low Income Tax Offset (maximum of AUD 700 for those earning up to AUD 37,500) that can apply to reduce the overall tax payable for those with taxable income up to AUD 66,667 (note that the Low and Middle Income Tax Offset does not apply after the 2021/22 income year). 

 

Non-residents

2022/23 and 2023/24 financial years:

 

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Note: Non-residents are not required to pay the Medicare levy in Australia.

The above does not take into account any tax offsets that may apply.

Working holiday makers

Special income tax rates apply to a working holiday maker who is typically an individual holding a temporary working holiday visa or a work and holiday visa in Australia. The first AUD 45,000 of a working holiday makers' income (broadly, the assessable income derived from sources in Australia, less related deductions) is taxed at 15%, with the balance taxed at ordinary rates.

 

Social Contribution

There are no social security taxes in Australia. However, a levy is imposed on taxable income and reportable fringe benefits of residents for the funding of a National Health Scheme (Medicare). The Medicare levy is currently 2%. No levy is payable by those with taxable income below the relevant low income thresholds.

A surcharge of between 1% and 1.5% applies to high income taxpayers where the taxpayer and their dependants are not covered by a private health insurance fund registered in Australia that provides basic hospital cover.

Both employers and foreign nationals working in Australia should take care in choosing a health fund which both qualifies for the exemption from the Medicare levy surcharge and provides adequate cover because it is possible to have a policy that provides full cover but does not also exempt the policy holder (and their family members) from the surcharge and vice versa. Proper advice should be sought from a tax expert to ensure that the policy covers both aspects.

Superannuation and retirement taxation

Employer supported and self-employed contributions to 'complying' superannuation entities and retirement savings accounts (RSAs) in Australia play a role similar to that of social security levies. The retirement benefits provided by these superannuation entities (which are independent of government, but have to comply with regulations so they are 'complying') are in addition to a means-tested age pension that is provided by the federal government.

The rules governing the taxation of superannuation entities are complex. Below is a brief summary of the current law.

Employers must contribute a set minimum percentage of the employee's earnings base, subject to limited exceptions, to a complying superannuation fund on behalf of their employees or be liable to a superannuation guarantee (SG) charge. The required SG percentage will progressively increase up to 12% as follows:

• From 1 July 2023: 11%.

• From 1 July 2024: 11.5%.

• From 1 July 2025: 12%.

It is usually tax effective (subject to certain limits) for employees to forgo or 'sacrifice' part of their salary to allow employer superannuation contributions on their behalf above this minimum. There is no limit to the amount of contributions that can be claimed as a deduction. However, there are limits on the amount that can be contributed per individual per income year that are eligible to receive concessional (favourable) tax treatment. Concessional superannuation contributions can be made on behalf of an individual up to AUD 27,500 per annum. Individuals with superannuation balances of less than AUD 500,000 also have the ability to carry forward unused concessional contributions from up to the five previous financial years and use the amounts to make additional concessional contributions during a particular financial year.

Individuals can also make non-concessional contributions to a superannuation fund (i.e. contributions that are not deductible). The annual non-concessional contribution cap is currently AUD 110,000 per year, subject to a three-year bring forward rule for those individuals aged under 75 years. For the 2023/24 financial year, the non-concessional cap is nil if the individual has a total superannuation balance greater than or equal to AUD 1.9 million as at 30 June 2023 (up from AUD 1.7 million as at 30 June 2022).

Individuals aged 55 years or over can use the proceeds from the sale of their eligible main residence to make ‘downsizer contributions’, limited to the lesser of AUD 300,000 and their share of the sale proceeds. These contributions are not tax deductible, and can be made regardless of other contribution caps and voluntary contribution restrictions.

Generally, concessional contributions made to complying superannuation funds together with the fund's earnings are subject to tax at the rate of 15% payable by the fund. The concessional rate of tax on contributions is effectively limited such that concessional contributions made in respect of individuals with combined taxable income, total net investment losses, reportable fringe benefits, and concessionally taxed superannuation contributions exceeding AUD 250,000 are subject to additional tax at 15% on those contributions that exceed the threshold.

Under the First Home Super Saver Scheme, an individual can apply to release voluntary superannuation contributions, along with associated earnings, to help purchase their first home, subject to meeting certain eligibility requirements. Concessional tax treatment applies to amounts withdrawn under the scheme.

Generally, all superannuation benefits received by an individual aged 60 or over are tax-free where those benefits are paid from a taxed source. However, the tax treatment of other superannuation benefits may depend on factors such as the components of the benefit, the amount of the benefit, the age of the member when the benefit is received, and whether the benefit is received as a lump sum or as a superannuation income stream.

Certain superannuation income streams are subject to minimum drawdown rates. 

The government is proposing to introduce an additional tax imposed on the individual who has a total superannuation balance above AUD 3 million. The tax will apply from 1 July 2025 at the rate of 15% on the member’s 'earnings' (i.e. the proportional increase in the total superannuation balance above AUD 3 million) from funds.

Taxation of legal persons

Companies, other than those that qualify as a CCIV (see below), that are residents of Australia are subject to Australian income tax on their worldwide income. Generally, non-resident companies are subject to Australian income tax on Australian-sourced income only. However, where a company is resident in a country with which Australia has concluded a double taxation agreement (DTA), Australia's right to tax business profits is generally limited to profits attributable to a permanent establishment (PE) in Australia.

All companies are subject to a federal tax rate of 30% on their taxable income, except for ‘small or medium business’ companies, which are subject to a reduced tax rate of 25%. The reduced tax rate applies only to those companies that, together with certain 'connected' entities, fall below the aggregated turnover threshold of AUD 50 million.

Integrity measures also ensure that a company will not qualify for the reduced rate unless the specifically defined passive income (including, among other things, interest, rents, and net capital gains) that it derives represents no more than 80% of its total assessable income for the year. 

From 1 July 2022, a new tax and regulatory framework applies to corporate collective investment vehicles (CCIVs). In general terms, a CCIV is a type of a company limited by shares that is used for funds management and for which the tax law applies to ensure that the income and gains of the entity are taxed on a flow-through basis to the investors.

Global minimum tax and domestic minimum tax

Australia will be implementing the Global Anti-Base Erosion (GloBE) Rules, a key component of the OECD’s Two-Pillar Solution to address the tax challenges of digitalisation of the economy.

Specifically, the government proposes to adopt the following elements of the global minimum tax:

• The Income Inclusion Rule, which will apply for income years starting on or after 1 January 2024. This rule will apply to Australian multinationals and Australian entities that are subsidiaries of a foreign-headquartered multinational located in a jurisdiction that has not implemented this rule.

• The Undertaxed Profits Rule, which will apply for income years starting on or after 1 January 2025. Where no Income Inclusion Rule applies, the Undertaxed Profits Rule will apply to foreign multinationals that operate in Australia.

In addition, the government proposes a 15% domestic minimum tax applying to income years starting on or after 1 January 2024. This tax will apply to Australian operations of multinationals and will ensure that Australia retains taxing rights over undertaxed Australian profits.

The global minimum tax and the domestic minimum tax will apply to large multinationals with annual global revenue of 750 million euros (EUR) (approximately AUD 1.2 billion) or more, subject to certain exemptions.

 
Goods and Services Tax - GST

The Federal Government levies GST at a rate of 10% and distributes the revenue to state governments. The GST is a value-added tax (VAT) applied at each level in the manufacturing and marketing chain and applies to most goods and services, with registered suppliers getting credits for GST on inputs acquired to make taxable supplies.

Food, with some significant exceptions; exports; most health, medical, and educational supplies; and some other supplies are 'GST-free' (the equivalent of 'zero-rated' in other VAT jurisdictions) and so not subject to GST. A registered supplier of a GST-free supply can recover relevant input tax credits, although the supply is not taxable.

Residential rents, the second or later supply of residential premises, most financial supplies, and some other supplies are 'input-taxed' ('exempt' in other VAT jurisdictions) and are not subject to GST. However, the supplier cannot recover relevant input tax credits, except that financial suppliers may obtain a reduced input tax credit of 75% of the GST on the acquisition of certain services.

Health insurance is GST-free. Life insurance is input-taxed. General insurance is taxed. Reverse charges may apply to services or rights supplied from offshore, where the recipient is registered or required to be registered, and uses the supply solely or partly for a non-creditable supply.

GST is applicable to cross-border supplies of digital products and services imported by Australian consumers. This measure ensures that digital products and other imported services supplied to Australian consumers by foreign entities are subject to the GST. Non-resident suppliers are required to register, collect, and remit GST on the digital products and services that they provide to Australian consumers.

The way Australia's GST rules apply to all cross-border supplies that involve non-resident entities operate to ensure that non-resident businesses do not have to engage in Australia’s GST system unnecessarily. This includes switching off the GST liability for certain supplies between non-residents and extending the GST-free rules to certain supplies made to non-residents.

There is no double taxation of digital currencies by ensuring that supplies of digital currency receive equivalent GST treatment to supplies of money.

GST is payable on certain supplies of low-value goods (valued at AUD 1,000 or less) that are purchased by consumers and are imported into Australia.