Australia is recognised as one of the easiest countries to do business in. The World Bank ranked economies based on their ease of doing business and Australia is among the top 15 economies, ranking at 14th place. The Heritage Foundation’s 2019 Index of Economic Freedom saw Australia as the 5th freest country in the world. The country’s diverse workforce and consumer market are also contributing factors to why businesses are growing and expanding in the Australian market.
Business owners and investors in Australia are liable to different forms of taxes and excises which are imposed at a federal or state level. Taxes in Australia are monitored and collected by the Australian Taxation Office (ATO) and state government revenue offices. Paying taxes in Australia can be complex for new business ownersーCapital Gain Tax, Goods and Services Tax, Medicare Levy, Superannuation, Payroll Tax, PAYG withholding, etc.ー even with the recently-introduced Single Touch Payroll, a tax reporting solution that helps streamline the payroll process. This is where HR and payroll specialists like Links International can lend a hand. Links’ Payroll Outsourcing Services can help relieve your HR and payroll responsibilities and elevate your role as a business owner, allowing you to focus on higher-value strategic activities. Find out how we can help today!
It is of fundamental importance for an employer to understand the tax obligations and taxation system where the business is. To help employers and HR leaders grasp the basics of taxation in Australia, Links has put together some essentials of what you need to know about tax obligations 一 Australian tax rates, corporate tax, income tax, and more.
Tax Obligations as An Employer in Australia
Once the first employee has been hired, an employer must comply with tax and superannuation obligations. We will go through several major tax obligations of an employer in Australia.
Tax obligations of employers in Australia include:
- PAYG withholding
- Paying payroll tax
- Superannuation for employees
- Fringe Benefits Tax
Pay As You Go (PAYG) Withholding
Employers in Australia have to assist employees with their year-end tax liabilities by deducting a pay as you go (PAYG) withholding amount from the salary. Before an employer can withhold taxes from payments, one must register their business with the Australian Business Register for PAYG. An annual report must be lodged at the end of each financial year to confirm the total withholding.
Payroll tax is a state and territory tax on wages and other remunerations an employer pays to his/her employees or contractors. The obligation only applies to employers or businesses that have exceeded the taxable wage threshold.
Superannuation for Employees
Superannuation or Super is a mandatory contribution to a complying super fund or retirement savings account, usually chosen by the employee, with an aim to provide for their retirement.
The minimum amount, super guarantee (SG), is currently at 9.5% of the employee’s time earning and the rate gradually increases over time. Generally, employees earning more than A$450 before tax per calendar month, the employer should pay super on top of their salaries. Employees also have a choice to make extra contributions to their super fund accounts voluntarily.
Fringe Benefits Tax (FBT)
In Australia, certain benefits provided to the employees or their family or other associated parties are subject to fringe benefits tax. The FBT is separate from income tax and the employer is responsible for self-assessing and lodging their liability for each FBT year, which is from 1 April to 31 March.
Some work-related items are exempted from fringe benefits tax, for example, computer software, protective clothing, mobile phones, tablets and GPS navigation receivers. A number of fringe benefits are eligible for concessional tax treatment that results in FBT reductions such as subsidies for living in remote areas, transportation, relocation and education for children of overseas employees.
Australia Corporate Tax Rates
The full Australia corporate tax rate is 30%, and the lower company tax rate, applied to companies that are base rate entities, is at a reduced rate of 27.5%. A base rate entity is a company that has an annual income less than the turnover threshold, and 80% or less of their assessable income is base rate entity passive income. Base rate entity passive income can include interest income, net capital gains, royalties, rent and gains on qualifying securities.
Capital Gain Tax (CGT)
Capital Gain Tax is the tax payable on any capital gain in Australia, as part of the company income tax. When a business sells an asset, it may make a capital gain or a capital loss. Business owners must report any capital gains and losses in their income tax returns. Capital gains are calculated into the assessable income, while capital can be used to offset capital gains.
Goods and Services Tax (GST)
The Goods and Service Tax is a 10% tax applied to most goods, services and other items sold or consumed in Australia. In most cases, businesses include the GST in the price they charge for the products and services they provide. A company is required to register for GST with the Australian Taxation Office (ATO) within 21 days when the GST turnover has exceeded the relevant threshold. Businesses that have registered for GST may claim GST credits for goods and services purchased for the business. When the GST collected by a business exceeds GST credits claimed, the difference must be paid to the ATO; this is normally settled every three months.
Employees’ Income Tax in Australia
As an employer, it is crucial and a responsibility to understand and facilitate your employee’s tax obligations in addition to your own.
Individual income tax rates in Australia can vary according to the employee’s residency status for tax purposes. An employee is considered an Australian resident for tax purposes if he/she satisfies one of the four residency tests一the resides test, the domicile test, the 183-day test and the Commonwealth superannuation fund test. As a tax resident, the employee is required to declare all their worldwide income. Those who do not meet any of the residency tests are considered foreign residents and required to declare any income derived in Australia.
In addition to income tax, Australia tax residents are liable to Medicare levy, 2% of the employee’s taxable income, to help fund the public health system. Foreign residents for tax purposes do not pay the Medicare levy.
Australia Income Tax Rates for Individuals
|A$0 – A$18,200||0%|
|A$18,201 – A$37,000||19%|
|A$37,001 – A$90,000||32.5%|
|HK$90,001 – HK$180,000||37%|
|HK$180,001 and above||45%|
An individual with a Taxable Income of A$37,000
A$18,200 x 0 % + A$18,799 x 19% = A$3572
Employees who are foreign residents are taxed at a higher rate and are not entitled to a tax-free threshold.
Individual Income Tax Rates for Foreign Residents in Australia
|A$0 – A$90,000||32.5%|
|A$90,001 – A$180,000||37%|
|A$180,001 and above||45%|
The Australian Taxation Office’s Income Tax Estimator is a useful tool for estimating individual income tax.
All set for your business expansion? Do you need help with payroll and HR functions? Are you looking for talents to join your new business in Australia? Get in touch with one of our Links specialists now!