The Australian income tax system dates back to 1907 and Tasmania was the first state of Islands that has introduced the income tax system after a recession in 1880.
Income tax rate in Australia is different for each category of income tax collected. Let’s get a more elaborate idea about the income tax types and their respective rates charged to residents.
Australian tax payment system enables every taxpayer to have a Tax File Number (TFN). The TFN is used by an employer to withhold the tax payable from their wages and salaries. If an employee fails to submit a TFN the maximum rate of interest is applied for income tax with the Medicare levy along with it. So the total tax rate increases to 45% plus 1.5%, a massive 46.5% of the total income by the employee.
The basic 4 types of income taxes are levied on the residents in Australia are;
- Personal Income Tax
- Capital Gains Tax
- Company Tax
- Payroll Tax
Personal income tax rate in the Australian tax system increases along with the increasing taxable income range of the residents. An income up to $6,000 is tax free and anything above it attracts the respective rate of income task specified for that range. The maximum income tax rate in Australia at present is 45%. An additional Medicare levy of 1.5% is added to the personal income tax making the highest rate of interest 46.5% which is very high compared to other countries.
The rate of income tax in Australia for the current financial year is as follows;
|Taxable income||Rate of income tax||Tax on the income|
|$6001 – $37,000||
|15c per $1 above $6,000|
|$37,001 – $80,000||
12.6 – 21.9%
|$4650 plus 30c per $1above $37,000|
|$80,001 – $180,000||
21.9 – 31.3%
|$17,550 plus 37c per $1above $80,000|
|$180,001 and above||
30.3 – 45%
|$54,550 plus 45c per $1above 108,000|
A simple example to make the above table understandable; if the personal income of a resident is $65,00 the income tax rate for him would be between 0 – 12%. He has to pay 15c x 500 = 7500c, which is $7.5 the amount on his income.
No marginal amount is assigned for income up to the $37,000 threshold. After the said limit a minimum amount of money is fixed for paying the tax along with an additional 30c for each dollar above $37,000.
Every range of income tax in Australia has a different fixed amount plus certain cents per dollar within that specific tax group.
Natural calamities sometimes impose some new rates of income tax in Australia, like the Queensland floods which has forced the residents to pay an additional tax at the rate of 0-1% depending on their income group. The figures show;
|Taxable income||Effective tax rate||Flood levy on this income|
|$0 – $50,000||0%||Nil|
|$50,000 – $100,000||0 – 0.25%||$0.005 for each $ above $50,000|
|$100,001 and above||0.25 – 1%||$250 along with $0.01 per dollar above $100,000|
Minors also pay tax for their earnings, but the Australian income tax rate is different for children below 18 than the adult taxpayers;
|Income range||Rate of income tax|
|$ – $416||0%|
|$416 – $1,307||0 – 45%|
|$1,307 and above||45%|
Children can earn up to a tax free amount of $3,333 by combining the income with LITO. Income from a full time or part time employment by a child receives the normal tax rate of adults rather than the children income tax rates. LITO is not meant for interests earned from investments income done for a minor, only salaried income comes under this category from 1st July 2011.
The Company Tax rate of Australia is a flat 30% on the dividends earned by the residents. This rate is fixed with the dividend imputation system, where the Australian residents pay income tax over only the dividends, having the profit with themselves. During the payment of corporate income taxes by the Australian corporation franking credits are generated that are utilized to pay dividends.
Capital gains tax (CGT) in Australia is not a different tax system it is a part of the Australia income tax system. A marginal rate is applied on net capital gains for tax payers after necessary concessions are made. Trusts, companies, individuals or any entity that can own an asset can be levied with a capital gains tax.
To avail a 50% discount on capital gain tax a property has to be owned by an individual, trust or a for a complete year excluding sale and purchase date. 33% of discount is offered to superannuation entities under the Australian income tax system. The property doesn’t get any discounts if owned by a company.
The payroll tax is different for each state of Australia. Payroll tax of Australia is the tax charged on an employer over the wages he pays to employees. The employer withholds the tax payable by an employee. Group of companies doing business with numbers of integrated companies are liable to pay the payroll tax as a single entity rather than paying it for each of their small companies separately. Some of the companies are entitled with exemption, concession or deductions in payroll tax.
The payroll tax rates are shown below:
|Rate of Payroll tax||Threshold|
|New South Wales||5.55%||$658,00|
|Australian capital territory||6.85%||$1,200,000|
Payroll taxes would change for each state and the income limits, as every state has its own rate of payroll tax and income group.
Family Tax Benefits (FTB) is a part of income tax system in Australia where families get some discounts on tax payment if the earning couples have dependent children with them. If a family is having more than $42,559 as its total income 20% reduction is applied on the income tax payable. 30% reduction is applied when the income crosses $94,000 threshold.