Australia's tax system is a very complex concept, but closely related to everyone and every family. Australia's tax system is extremely complete, and there are many differences between the tax system and the Chinese tax system. So, how does it work? Today we will give you a brief introduction to Australia's tax system.
First of all, let's take a look at some of the basic concepts of taxation.
Tax resident (Australian resident for tax purposes) and non-tax resident (foreign resident for tax purposes)
Tax residents and permanent residents (PR) is a different concept. The definition of tax residents and non-tax residents depends on many factors. Generally speaking, if you stay in Australia for more than half a year, you will be tax residents, otherwise you will be non-tax residents. For example, students studying in Australia hold student visas, but because they stay for more than half a year, they belong to tax residents. For example, Australia's PR has been staying in China all the year round, only occasionally visiting Australia for vacations and staying in Australia for less than half a year. Such holders of Australian PR are also non-tax residents.
As a tax resident, the tax payable in Australia is: final taxable (Tax Payable) = income tax (Tax on income) Health Insurance tax (Medicare Levy)-tax Credit (Tax offset)-tax paid (Tax Credit)
Income tax (Tax on income)
Income tax depends on the amount of tax payable (Taxable income) and marginal tax rate (Marginal tax rate). Tax payable equal to taxable income (Assessable income)-allowable deduction (allowable deduction).
Marginal tax rate (Marginal tax rate)
Figures I and II respectively show the tax rates for tax and non-tax residents in 2016 / 2017:
Figure I: tax resident tax Table 2016 / 2017 (Source: ATO)
Figure II: non-tax resident tax Table 2016 / 2017 (Source: ATO)
Health insurance tax (Medicare Levy)
Typically 2% of (Taxable Income) is taxable, but there are deductions for low-income people. Residents (such as non-PR) who do not enjoy Australian local health benefits, (Medicare Benefits), are not subject to health insurance taxes.
Tax credit (Tax offset)
The most common are low-income tax credits for (Low income tax offset) and dividend credits for (Franking credit).
The low-income tax credit refers to a tax credit of up to A $445 for residents earning less than A $66667. The following table reflects the low-income tax credit (2016 / 2017):
Taxable income (Taxable income) tax Credit (Tax offset payable)
≤$37,000 $445
$37,001-$66,666 $445-[(Taxable income-$37,000)*1.5%]
≥66,667+ NIL
Source: Australian Revenue Service, (ATO)
Dividend credit (Franking credit)
When an investor receives a dividend from a company, it may be accompanied by a "withholding tax" because the company has already paid a profit tax for it. Withholding taxes can significantly reduce the amount of tax to be paid on dividends to investors.
Tax paid (Tax Credit)
This includes payroll tax deduction (PAYG Withheld) and withholding tax (PAYG Instalments).
Generally speaking, for individuals and families, taxable income mainly comes from four types. The first category: the wage earned by individuals in the form of working; the second type: investment income, common bank interest, stocks, real estate, etc.; the third category: mainly refers to pension income. Category IV: income generated from your own business operation or family trust. Next, we will focus on the first three sources of revenue, and cite relevant cases to explain.
Type I: wages
Now let's take a look at the tax on "income sources in the form of working for individuals or families." the following are examples of tax residents and non-tax residents.
Case 1: Xiao Wang, 46, is an Australian tax resident and enjoys medical benefits. In fiscal year 2016-2017, income from wages was A $57000. Without considering other factors, what is Xiao Wang's taxable income this year?
Specific calculations: (based on tax resident tax scale above)
Because Xiao Wang's income is less than 66666 Australian dollars
Low-income tax credit (low income tax offset) = $445-[($57,000 / 37000 * 1.5%] = $145
Income tax = 3572 32.5% (57,000 / 37000) = $10072
Health insurance tax = $57,000 / 2% / 1140
Final tax payment to ATO = $10072 $1140 / 145 / 11067
Therefore, Xiao Wang needs to pay a tax of US $11067 to the Australian Inland Revenue Authority in 2016 / 2017.
Here is an online tax calculator for you to calculate (here you can check whether or not you are a tax resident):
http://www.taxcalc.com.au/
Case 2: Xiao Wang, 46 years old, is a non-tax resident. In the fiscal year 2016-2017, with a wage income of A $57000 and no medical benefits, what is Xiao Wang's taxable income this year?
Specific calculations: (based on the above non-tax resident tax scale)
32.5%*$57,000=$18,525
Therefore, Xiao Wang needs to pay a tax of US $18525 to the Australian Inland Revenue Authority in 2016 / 2017. Non-tax residents do not enjoy low-income tax breaks.
Type II: return on investments
There are three main forms of investment income: interest (Interest Income), stock return and asset gain tax (Capital Gain Tax).
Interest (Interest Income): generally refers to bank interest, interest on related government bonds and so on. Tax resident interest is counted as taxable income (i.e. at marginal tax rate) and non-tax resident interest tax is a constant 10%.
On the basis of the above example, Xiao Wang earns an additional interest of 1000 Australian dollars. If Xiao Wang is a tax resident, how much should Xiao Wang eventually pay this year?
$11,067+$1,000*(32.5%+2%)=$11,101.50
If Xiao Wang is a non-tax resident, how much does Xiao Wang end up taxable this year?
$18,525+1000*10%=$18,535
Stock return category: generally refers to the income generated by investors buying and selling stocks. Investors receive dividends in two ways. One is the tax-free dividend (Franked dividend), which indicates that the company has paid the dividend tax. The tax-free dividend also includes a partial tax-free dividend (Partially Franked) or a full tax-free dividend (Fully Franked). The other is that investors have to pay a share tax, (Unfranked). For the full tax-free dividend of the tax-free dividend, because the corporate tax is 30 percent, the company will draw 30 percent from the investor's dividend, and the investor will receive 70 percent of the dividend. That means a dividend of $70 and a tax of A $30 for every A $100 in revenue payable. However, in order to avoid repeated tax payments to investors, investors will receive the portion of the repeated tax collection.
Tax resident dividends are counted as taxable income (i.e. at marginal tax rate) and non-tax resident dividend tax is a constant 30% (dividend tax payable) or 0% (full duty-free dividend):
Case 1: if Xiao Wang, a 47-year-old Australian tax resident, received A $57000 in wages and a tax-free dividend of A $2420 in fiscal year 2016-2017, the tax-free dividend (Fully Franked Dividends) was A $2420. Calculation: how much tax does Xiao Wang have to pay in fiscal year without considering other conditions, including not considering paying medical expenses, such as (Medicare Levy), etc.?
The calculations are as follows:
Dividend duplicate tax (Group-up franking credits) = $2420 * (30 / 70) = $1037
Taxable income = $57000 $2420 $1037 / 60457
Tax payable (Tax on taxable income) = $3572 32.5% ($60457 / 37000) = $11196
Final tax payable to ATO = $11196 / 1037 / 10159
Therefore, Xiao Wang needs to pay a tax of US $10159 to the Australian Inland Revenue Authority in 2016 / 2017.
Case 2: if Xiao Wang, a 47-year-old non-tax resident, received A $57000 in wages and a tax-free dividend of A $2420 in the 2016-2017 fiscal year, the tax-free dividend (Fully Franked Dividends) was A $2420.
Because Xiao Wang charges tax-free dividends and no additional taxes, Wang will have to pay the Australian Inland Revenue Authority a tax of still $18525 in 2016-2017.
Asset gains tax (Capital Gain Tax): mainly refers to the tax required to obtain income after dealing with the asset. Assets include tangible and intangible assets, such as land, investment property, construction, unit trust, foreign currency, etc. Generally speaking, there are three ways to calculate the tax on asset gains, the coefficient method, the discount method, and other methods. If a loss occurs in asset trading, there will be a set-off of capital gains for the current year or later. The following table summarizes the calculation of profits tax on three types of assets:
Case 1: if Xiao Wang, a 47-year-old Australian tax resident, bought an investment home of eight hundred thousand Australian dollars in 2013 and offered 1 million Australian dollars in 2016, how much of his assets would need to be taxed without regard to other fees and factors?
Specific calculation method:
Asset gains = 50% ($1000000 / 800000) = $100000
The next calculation of capital gains tax will be in line with the other income calculations of tax residents.
Case 2: if Xiao Wang, a 47-year-old non-tax resident, bought an investment home of eight hundred thousand Australian dollars in 2013 and a 2016 selling price of 1 million Australian dollars, how much of Xiao Wang's assets would need to be taxed without regard to other fees and factors?
After May 8, 2012, non-tax residents were no longer entitled to a 50% discount on capital gains, resulting in a capital gain of $200, 000. Capital gains tax will then be calculated in a manner consistent with other income calculations for non-tax residents.
Type III: pension benefit
Australia's pension system is well established, with individual or family contributions to pension income in many ways, such as self-supply, employers, asset benefits, legacies and windfalls. At present, employers need to provide at least 9.5% of the wage pension. Australia's pension system is also very complex, with a tax rate of 15 percent on pension accounts within a certain range, but additional taxes are required if the amount is exceeded. To withdraw money from one's pension needs to satisfy some conditions, generally speaking: 1. 65 years of age or over; 2. 3. Reaching retirement age and retiring; Still working and opening transitional retirement to retirement account (Transition to retirement).
Here is a very simple example:
Case 1: if Xiao Wang, a 47-year-old Australian tax resident, paid a total of 5000 Australian dollars in pensions in 2016 and 2017, how much tax would Xiao Wang have to pay without regard to other conditions?
The calculations are as follows:
5000*15%=$750
Therefore, Xiao Wang's pension needs to pay a tax of 750 Australian dollars. This tax will be deducted from Xiao Wang's pension and has no effect on the individual's cash flow.
Tax avoidance:
Australia's tax system is so perfect and rigid that tax avoidance methods are diverse and complex because everyone is different. So how do we avoid taxes? What are the primary tax avoidance methods?
The primary tax avoidance methods in Australia are as follows: deductible income (allowable deduction), losses offset tax (Negative Gearing), pension benefit (Salary Sacrifice), hedge account (Offset Account), family trust (Family Trust)
Allowable earnings (allowable deduction): simply means that some of the expenses can be used to offset the related income. Some expenses, such as computers, briefcases, work-related items, and so on, can be used to offset current tax income if they are required for work.
Loss offsetting tax (Negative Gearing): literally is a relative hedge between lossmaking investment and profit investment. For example, the loss of the rent of the house can be deducted from the personal tax paid by the commuters. Or the profit-making portion of stock trading can be hedged against the loss part.
Pension benefits (Salary Sacrifice): this is a tax avoidance method of turning a portion of your income into a personal benefit or putting money into a pension account.
A hedge account, (Offset Account):, generally refers to bank interest, which is not counted as interest income, into a hedge account on household loans.
Family trust (Family Trust): family trust is a kind of structure of running business or investment. It is a tax avoidance way in itself, which divides the profit into various family members and makes full use of the advantages of low income people with low tax rate.
Let's look at how to reduce tax payables by avoiding taxes by allowing earnings (allowable deduction) to be deducted:
Case 1: if Wang, a 47-year-old Australian tax resident, received A $57000 in wages in fiscal year 2016-2017, A $2530 was deductible. Without considering other factors, what is Xiao Wang's taxable income this year?
Specific tax calculations are as follows:
Exemption from tax income after deducting earnings = $57,000 / 2530 / 54470
Deductible taxable (Tax on taxable income) = $3572 32.5% ($54470 / 37000) = $9250
Low-income tax credit (low income tax offset) = $445-[($54470 / 37000) * 1.5%] = $183
Health insurance tax = $54470 / 2% / 1089.4
Final tax payable to ATO = $9250 $1089.4 / 183 / 1, 0156.5
So, if Wang doesn't allow deductions, (allowable deduction), will pay ATO $11067. For now, however, only $1,0156.5 has to be paid to ATO. Thus, Xiao Wang reduced taxes by $910.5.
Summary:
Because of the complexity of Australia's tax system and the ongoing updating of its tax system every year, specific calculations and tax avoidance needs to be specifically analysed on the basis of the actual circumstances of the individual, and tax proposals need to be consulted with relevant professionals in advance, To avoid causing unnecessary damage. The analysis, opinion or other information in this article is not a personal summary of recommendations, and interested readers can go on to https://www.ato.gov.au for further research.
