Tax returns and compliance
Termination of residence
Types of taxable income
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation
All information contained in this document is summarized by KPMG Australia Pty Limited, the Australian member firm of KPMG International, based on the Australian Income Tax Rates Act 1986, Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992, Medicare Levy Act 1986 and Income Tax Assessment Act 1936 Part VIIB, Australian Income Tax Assessment Act 1936 and Australian Income Tax Assessment Act 1997, the Australian Fringe Benefits Tax Assessment Act 1986, Australian Taxation Administration Act 1953, Part 2-5, Australian Income Tax Assessment Act 1997 Division 102 (section 102-5 is the operative provision which includes net capital gain in assessable income), Australian Taxation Office web site ATO assist at www.ato.gov.au or Tax Pack.
When are tax returns due? That is, what is the tax return due date?
Tax returns are due by 31 October following the tax year-end. If you use a tax agent to lodge your return, an extension is automatically available in some cases through to 5 June the following year.
What is the tax year-end?
What are the compliance requirements for tax returns in Australia?
Tax returns are required to be filed by a resident individual whose total income derived from sources in and out of Australia is more than the minimum threshold (AUD18,200 for 2014/15). For temporary residents, non-employment income derived from sources outside of Australia is generally ignored for this purpose. Furthermore, employment income derived from sources outside of Australia, prior to arrival in Australia, is generally ignored for this purpose.
Spouses file separate tax returns. There is no joint filing in Australia.
The tax-free threshold will be available only on a pro-rata basis in the year where a taxpayer:
Tax returns are required to be filed by non-residents who derive any Australian-sourced income (other than dividends, interest, managed investment trust income or royalties, and departing Australia superannuation payments which are subject to a final withholding tax).
What are the current income tax rates for residents and non-residents in Australia?
Income tax table for 2015/2016
|Taxable income bracket||Total tax on income below bracket||Tax rate on income in bracket|
|From AUD||To AUD||AUD||Percent|
Income tax table for 2015/2016
|Taxable income bracket||Total tax on income below bracket||Tax rate on income in bracket|
|From AUD||To AUD||AUD||(Percent)|
For the purposes of taxation, how is an individual defined as a resident of Australia?
A resident is defined as a person who resides in Australia and includes:
Generally, individuals who come to Australia with an intention of living in Australia in a routine manner for six months or more would be treated as tax residents of Australia from the date of arrival.
A temporary resident is a person who is a resident of Australia (using the definitions noted earlier) and who is the holder of a temporary visa. Persons who are Australian citizens, permanent visa holders, or holders of special protection visas (or the spouse of one of these) cannot be considered temporary residents of Australia.
Is there, a de minimus number of days rule when it comes to residency start and end dates? For example, a taxpayer cannot come back to the host country for more than 10 days after their assignment is over and they repatriate.
No. When a tax resident departs Australia whether they become a non-resident from that date depends on their longer-term intentions with regard to remaining abroad and returning to Australia, as well as whether they have ongoing ties with Australia, rather than the actual number of days absent.
What if the assignee enters the country before their assignment begins?
The assignee may become a tax resident of Australia on the date they enter Australia, rather than the date their assignment begins, if earlier.
Are there any tax compliance requirements when leaving Australia?
A final income tax return may be required for the tax year in which they departed.
What if the assignee comes back for a trip after residency has terminated?
The residency tests above need to be considered each time the assignee returns to Australia. In addition, if the trip back is anticipated at the time that they departed Australia, this may defer the date that they become a non-resident for tax purposes.
Do the immigration authorities in Australia provide information to the local taxation authorities regarding when a person enters or leaves Australia?
The Department of Immigration and the Australian Taxation Office have initiated a data-matching program to ensure taxpayers are correctly meeting their taxation obligations.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
The assignee will be required to file a tax return for the year of departure, and also any subsequent year in which they have income which is taxable in Australia.
Do the taxation authorities in Australia adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Australia considering the adoption of this interpretation of economic employer in the future?
Australian taxation authorities can adopt the economic employer approach. They consider a number of circumstances to determine the economic employer, for example which entity bears the risk or has control/responsibility over the employee. Thus, in cases where an employee works in the business and is under the control of the Australian entity, the Australian entity might be considered as the economic employer even if no costs are recharged to it.
Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
What categories are subject to income tax in general situations?
*Employment income is taxable when received or when the employee is entitled to receive it, if earlier. Employment income is generally subject to tax to the extent it was earned/derived during a period of Australian residence, or in the case of income earned/derived while non-resident, to the extent it was earned in respect of duties performed in Australia.
Are there any areas of income that are exempt from taxation in Australia If so, please provide a general definition of these areas.
Living away from home allowance
Are there any concessions made for expatriates in Australia?
Temporary residents must maintain a home for immediate use and enjoyment in Australia to access the concessions detailed above for Living Away From Home benefits, unless they work on a rotational basis.
Is salary earned from working abroad taxed in Australia? If so, how?
If the recipient is a tax resident of Australia at the time then yes, it is taxable in Australia with a credit allowed for foreign taxes paid on that income.
If the assignee is a tax resident of both Australia and the country where the services were performed then any relevant double tax treaties need to be considered to determine which country has the right to tax the income.
Bonuses received by a temporary resident after arrival in Australia will not be subject to Australian tax if they relate to services performed prior to arrival in Australia.
Non-residents are not subject to tax on salary earned from working abroad.
Are investment income and capital gains taxed in Australia? If so, how?
Investment income (such as dividends, interest, and rental income) and capital gains are assessed to tax in the year in which they are derived. They are included in total taxable income. Tax is levied at personal income tax rates, and a claim may be made to offset foreign taxes paid on foreign-source income.
Assignees who meet the temporary resident definition discussed earlier are generally exempt from tax on foreign investment income and gains.
Following a number of recent legislative changes to the taxation of employee share schemes in Australia, the Australian tax implications associated with these arrangements for employees who relocate internationally between grant and vesting are extremely complex.
The ultimate Australian tax treatment of employee share scheme income can be influenced by factors including, but not limited to, the terms of the plan, the type of instrument, the date of grant, the date of vest, the other country or countries of residence, and the Australian visa status of the employee.
Transient employees should seek advice that is specific to their facts and circumstances.
From 1 July 2015 there are new tax rules for the treatment of employee share schemes including a concession for start-up companies. The key change is in relation to the deferred taxing point for ESS interests which will help realign the Australian tax treatment of employee share scheme income with international best practice.
Certain foreign currency gains and losses are brought into account. These can include, among other items:
There are a number of elections that can be made within statutory time limits, including:
The Australian taxation system includes a capital gains tax (CGT), which in broad terms applies to certain assets acquired, or deemed to have been acquired, after 19 September 1985 upon their realization (or deemed realization). Gains taxed under the CGT provisions are not taxed separately but are included in assessable income and taxed at the individual’s marginal rates.
Indexation method - the asset cost base can be indexed in accordance with the rate of inflation for periods of ownership up to 30 September 1999.
Where the asset was purchased prior to 21 September 1999 and disposed of after this date, the taxpayer may calculate the gain using either the discount or indexation method. Where the asset is purchased and sold after 21 September 1999, the taxpayer is only able to calculate the capital gain using the discount method.
For assets held for less than 12 months, the gain cannot be discounted or indexed.
The 50% discount is not available to non-residents or temporary residents for any disposals after 8 May 2012. It will remain available for capital gains accured prior to this time when non-residents andor temporary residents choose to obtain a market valuation of assets as of 8 May 2012.
Capital losses are offset against gross gains realized in the current year (pre 50 percent discount, if available) with the balance carried forward and offset against realized capital gains in subsequent years. Capital losses can not be increased by indexation.
Disposal of an asset by gift is a realization event, with the disposal consideration and cost of acquisition by the person receiving the property being taken to be the fair market value of the gifted property.
Are there capital gains tax exceptions in Australia? If so, please discuss?
CGT does not apply to an individual’s principal residence (including a reasonable amount of land (up to two hectares)) provided the house or land is not used for the purpose of gaining or producing assessable income.
The CGT provisions do not apply to assets acquired prior to 20 September 1985.
At the time of becoming a resident, the CGT legislation deems a person to have acquired assets, other than taxable Australian assets, for their fair market value on that date. Where a resident breaks Australian residency, the person is deemed to have disposed of all assets for their market value at that time except for certain taxable Australian assets which remain subject to the CGT provisions.
When a person ceases to be an Australian resident, he/she or she may elect to treat all assets as Taxable Australian assets until the assets are disposed of or until he/she resumes resident status in Australia. This election effectively operates to defer CGT on such assets until they are actually disposed of, subject to the operation of a double tax treaty.
For non-residents and temporary residents, gains accrued after 8 May 2012 no longer qualify for the 50 percent discount. Non-residents/temporary residents retain access to the full CGT discount for capital gains in respect of increase in value of assets up to 8 May 2012 (subject to conditions). Where an individual was partly a non-resident/temporary resident during the period after 8 May 2012, the discount percentage is apportioned based on Australian residency period.
Further, where a person leaving Australia was in Australia on 6 April 2006 and has held Australian resident status for less than five of the ten years preceding their departure, they will be exempt from Australian CGT on non-Australian assets owned prior to becoming a resident and retained at the date of departure.
The deemed disposal and acquisition rules do not apply to temporary residents, however are activated at the time the temporary resident becomes a permanent resident.
What are the general deductions from income allowed in Australia?
A deduction is permitted in relation to all losses and outgoings to the extent that they are incurred in gaining or producing assessable income, except to the extent to which they are losses or outgoings of a capital nature. In addition, deductions are specifically permitted for certain types of expenditure such as:
What are the tax reimbursement methods generally used by employers in Australia?
Current year gross-up is the normal method of recognizing tax reimbursements paid by the employer.
How are estimates/prepayments/withholding of tax handled in Australia? For example, pay-as-you-earn (PAYE), pay-as-you-go (PAYG), and so on.
Withholdings from employment income are covered under the PAYG system.
When an individual is paid by their employer, the employer will be required to withhold tax from their salary and wages and remit the tax to the Australian Taxation Office (ATO).
When an individual commences employment they will be requested to quote their Tax File Number (TFN) to their employer. While quoting a TFN is not compulsory, if not done, the employer will be obliged to make PAYG withholdings at the top marginal income tax rate.
At the end of the year the employer will provide the individual with a payment summary which shows the income earned and tax withheld during the year.
The employee should retain a copy of the payment summary to assist in the preparation of their income tax return.
Under the PAYG system, an individual may be subject to PAYG instalment tax payments if they received investment or business income in their last income tax return of AUD4,000 or more. Wages and salary income is not included for PAYG instalment purposes. The instalments are payable either annually or quarterly.
An individual will not be obliged to pay PAYG instalments unless notified by the ATO to do so.
Is there any relief for foreign taxes in Australia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
Under the foreign income tax offset (FITO) system all assessable foreign-source income, including dividends, interest, and royalties derived by Australian residents (excluding temporary residents), will be subject to Australian income tax with a credit allowed for foreign tax paid on that income.
An FITO is only available where both:
The offset cannot exceed the amount of Australian tax payable on the foreign income.
What are the general tax credits that may be claimed in Australia? Please list below.
Tax offsets, as opposed to tax credits, may be available for:
Tax offsets differ from tax credits as they can only be used to reduce the employee's tax liability; any excess cannot be refunded.
This calculation assumes a married taxpayer resident in Australia with two children whose three-year assignment begins 1 July 2012 and ends on 30 June 2015. The taxpayer’s base salary is USD100,000 and the calculation covers three years.
|2014USD||2015 USD||2016 USD|
|Moving expense reimbursement||20,000||0||20,000|
Exchange rate used for calculation: USD1.00 = AUD1.30
|2014 AUD||2015 AUD||2016 AUD|
|Days in Australia during year||366||365||365|
|Earned income subject to income tax|
|Net housing allowance*||0||0||0|
|Moving expense reimbursement*||0||0||0|
|Total earned income||156,000||156,000||156,000|
|Total taxable income||163,800||163,800||163,800|
|2013 AUD||2014 AUD||2015 AUD|
|Taxable income as above||163,800||163,800||163,800|
|Total Australian tax*||48,553||48,553
*This does not include the Medicare levy and Temporary Budget Repair Levy
Economic employer approach - Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the ‘economic employer’ and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
De minimus number of days - For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
Sample tax calculation - Sample calculation generated by KPMG Australia Pty Limited, the Australian member firm of KPMG International, based on the Australian Income Tax Rates Act1986, Medicare Levy Act 1986 and Income Tax Assessment Act 1936 Part VIIB, Australian Income Tax Assessment Act 1936 and Australian Income Tax Assessment Act 1997, the Australian Fringe Benefits Tax Assessment Act 1986, Australian Taxation Administration Act 1953, Part 2-5, Australian Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992, Australian Income Tax Assessment Act 1997 Division 102 (section 102-5 is the operative provision which includes net capital gain in assessable income), Australian Income Tax Rates Act 1986, Australian Taxation Office web site ATO assist at www.ato.gov.au or Tax Pack, Sample tax calculations prepared by KPMG in Australia, International Executive Services Practice.
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.