Taxation in Australia

For any economy to grow, taxation plays a crucial role. While it could be a nightmare for many taxpayers, the system is vital for a nation's development. Income tax is the most prevalent form of tax in Australia.

The federal government collects the tax and Australian Goods and Services Tax (GST) revenue through the Australian Taxation Office (ATO). Later, the body pays the revenue collected to the states under a distribution formula specified by the Commonwealth Grants Commission. 

Comparatively, Australia has a low tax burden than other wealthy and developed nations. 

History of Tax in Australia

In 1788, Arthur Phillip, the first Governor of New South Wales (NSW), had a royal instruction to levy taxation if the colony required it. He inflicted the first tax in Australia to provide for the colony's orphans and help pay for the completion of the first prison in Sydney.

After 1824, excise and customs duties were the vital revenue sources for the Government of NSW and continued throughout the 19th century. 

People had to pay taxes on cigarettes, beers, cigars, tobacco, and spirits. These taxes were different for distinct Australian colonies, and once the colonies obtained statehood, this state of affairs remained in place. 

Besides, colonial governments also lifted capital from fees on stamp duty and wills, a tax charged on specific types of documents. The Colony of Tasmania foisted a tax on income obtained from the gains of public companies. 

Income tax in Australia was introduced in a few colonies before the Federation in the late 19th century. A general income tax was imposed in South Australia in 1884. The income tax was inflicted in NSW in 1895 at the rate of 2.5% or sixpence in the pound.

Then in 1915, the Federal income tax was instigated to fund the war effort of Australia in the First World War. Income taxes were imposed at both the federal and state level between 1915 and 1942. 

Then came the Capitals gain tax in 1985. In 2000, the GST (Goods and Services Tax) replaced the older wholesale tax. Currently, Australia has distinct forms of taxes that different entities are obliged to pay. 

Different Forms of Taxes in Australia

Combining federal and state, there are 12 types of taxes in Australia, namely:

• Personal Income Taxes: Such are the most prevalent forms of taxes in Australia. Income tax on individuals is levied at the federal level. 
• Capital Gains Tax (CGT): The tax is applicable on capital gains on the disposal of any asset, except for certain exemptions.
• Corporate Taxes: As the name suggests, corporations and companies pay corporate taxes on their net profit.
• Trustee Liability Tax: The trustee has to pay this tax when the trust has generated net trust income. The government assesses the trustee on the yielded incomes at the highest individual marginal rate. 
• Goods and Services Tax: The federal government levies a value-added tax, GST, at 10% on the supply of goods and services by entities entitled to pay tax. 
• Property Tax: Local government levies taxes on the land value (council rates) on commercial, residential, and industrial properties. Additionally, State Governments also impose taxes on land value for primary residences with higher values and for investors with luxurious properties. 
• Departure Tax: It is a tax form that the Australian government levies on passengers departing on maritime transport or international flights. 
• Excise Tax: Such a tax is applicable on goods such as petrol, cigarettes, and alcohol, and is imposed by the Federal government. 
• Payroll Tax: State governments inflict payroll tax on employers depending on the wages they pay. Such a tax varies from one state to another. 
• Custom Duties: Various imported/custom goods, including perfumes, tobacco products, alcohol, and other items attract this kind of tax.
• Fringe Benefits Tax: The Australian Taxation Office applies fringe benefits tax to not all, but most fringe benefits are usually non-cash. 
• Inheritance Tax: As of now, there is no inheritance tax in Australia. However, private pensions may be taxed. 

Corporate Tax Australia

Corporations and companies pay corporate tax (CT) on their net profit. However, if the organisation has incurred any loss, it will be carried forward to the next fiscal year. The corporate tax is determined at a flat rate of 30% for big organisations and 25% for small businesses. 

The CT is paid on the corporation’s profit at the corporate rate and is usually available for distribution, besides any retained earnings the organisation may have carried forward as dividends to shareholders. 

A tax credit, also known as a franking credit, is applicable for resident shareholders getting dividends to show the tax paid by the company. It is a mechanism referred to as dividend imputation. A withholding tax is applicable to non-resident shareholders receiving unfranked dividends. 

Individual Taxation in Australia

Individuals in Australia have to pay taxes on both capital gains and income. Both Australian non-resident individuals and resident individuals can be subject to Capital Gains Tax and Income Tax based on their source of income. 

To tax individuals, Australia employs a progressive tax scale system under which the rate of tax payable rises with the increase in taxable income. 

Non-residents arriving in Australia for the job and if the government treat them as a resident for tax purposes, they may also be eligible for a ‘temporary resident’ status. 

Temporary residents also have to pay the same tax as Australian citizens pay and receive tax exemptions. 

Consumption Taxes in Australia

GST is a broad-based consumption tax levied on the majority of goods and services sold in Australia and those levied on the majority of goods and services sold in Australia (much like the Value Added Tax in other nations).

It is assessed at a 10% flat rate. The GST is not applied to some goods and services, including food, exports, education, and health. GST is a purchasing fee that must be paid by all customers.

Businesses and individuals operating an enterprise must register for GST if their yearly revenue exceeds a certain threshold.

Depending on the difference between the amount of GST collected through sales and any tax credits earned from GST paid on goods and services acquired in the course of carrying on their business, these enterprises may either be due to the ATO or entitled to a refund each year.

Property Tax Australia

Council rates on residential, commercial, and industrial properties are the main source of funding for local governments. Additionally, some State governments impose taxes on the land prices of high-value primary houses and investments. Additionally, stamp taxes are levied by the state governments on land transfers and other such transactions.

Fire Service Levies are frequently imposed on commercial insurance policies as well as domestic home insurance policies. According to State Government law, these taxes are necessary to help pay for the fire services in each State.

International Taxes in Australia

If you are a foreign resident employed in Australia, you must report any income with an Australian source on your Australian tax return. Your revenue from sources in Australia can include:

• Rental income
• Employment income
• Australian annuities and pensions, unless there is an exemption under a tax treaty or Australian tax law
• Capital gains on Australian assets.

In most cases, you are not required to report income from sources outside of Australia on your Australian tax return.

Additionally, if the Australian financial institution or business that pays you has already deducted tax, you don't need to disclose any interest, dividends, or royalties that are of Australian origin that you receive as a foreign resident. If you tell them that you are a foreign resident, they will carry out this action automatically.

You must pay tax on every dollar of income you make in Australia since you are unable to claim the tax-free level.

Lodging Your Return

You can lodge your tax return anytime after June 30. However, October 31 is the decisive deadline for self-lodgement. While you can choose to self-lodge, it is recommended that you first go through a tax agent to ensure every detail in the application is furnished correctly. This will ensure that you receive your best return within the stipulated time. 

It is crucial to have all your supporting documents handy before you lodge your return online or approach the office for an appointment. This will make your lodgement process smoother. It is advised to keep all your vital documents, invoices, and receipts for the entire year together in a file. It will save you ample time while filing your return. 

It is also significant to make sure that all your details are updated well. If you have changed your name or moved to somewhere else, you must update this information with the ATO. Even minor mistakes like these can retain your return for weeks, or you might even have to pay fines for that same. 

It's crucial that you are completely aware of your tax duties if you are retired or have access to your super fund. When it comes to tax on superannuation withdrawals, people of different ages have varying amounts of duties.

Deductions

Tax deductions are expenditures incurred for business purposes during the fiscal year. In general, it lessens taxable income and is often the cause of tax refunds that people receive. 

Any money you spend on something related to your work is tax deductible. You have the complete right to claim the cost deduction if the money spent by you helps you finish your job. 

For instance, work-related travel expenses or uniform expenses. In case you are using your personal phone, desktop, laptop, or tablet for work, you qualify to claim a tax deduction for such purposes.