How Much Tax Do You Pay in Australia as an Expat?
Moving to Australia as an expat comes with a host of new experiences and opportunities, but it also brings important tax obligations. Understanding the tax system is crucial to effectively manage your finances and avoid any unwelcome surprises when you file your tax return.
One of the most common questions expats have is about how much tax they’ll need to pay when they live and work in Australia. In this blog, we’ll explore some key considerations of the Australian tax system for expats, including tax residency, income tax rates, and available deductions to help you navigate your financial responsibilities.
Residents vs non-residents
Your tax residency status in Australia will determine how much tax you pay and whether you are taxed on your worldwide income or just your earnings in Australia. The Australian Taxation Office (ATO) will assess your tax residency based on various factors, and being in the country for a certain period doesn’t necessarily mean you qualify as a resident for tax purposes.
Residents pay tax on their worldwide income, so they must declare both Australian and foreign earnings. They can access the tax-free threshold, which allows them to earn up to a certain amount before paying tax. Plus, residents may be eligible for tax offsets, deductions, and the Medicare levy, which helps fund Australia’s public healthcare system.
Non-residents only pay tax on their Australian-sourced income and will not benefit from the tax-free threshold, meaning they will be taxed from the first dollar earned in Australia. Non-residents are also not required to pay the Medicare levy but may need to consider private international health insurance while living in Australia.
How is tax residency determined in Australia?
The ATO uses four main tests to assess whether an individual is a tax resident:
- Resides test – If you live in Australia and your day-to-day life is centred there, you will be considered a tax resident. This includes factors such as your home, family ties, and employment.
- Domicile test – If your permanent home is in Australia, you may be a tax resident, even if you are temporarily living overseas.
- 183-day test – If you are physically present in Australia for 183 days or more in a financial year, you may be classed as a tax resident unless you have a clear permanent home elsewhere.
- Commonwealth superannuation test – If you are a member of certain government superannuation schemes (usually for Australian government employees working abroad), you are automatically considered an Australian tax resident.
If you move to or from Australia, your tax residency status may change. It’s important to notify the ATO and understand the tax implications, especially if you have foreign income, investments, or superannuation contributions.
What income is taxable in Australia?
If you are an expat earning income in Australia, it’s important to understand what is considered taxable by the Australian Taxation Office (ATO). Your tax liability depends on whether you are classed as a resident or non-resident for tax purposes, as well as the source of your income.
Below are the types of income that could be taxable for expats in Australia:
- Employment income –any salary earned from an Australian employer, including bonuses and allowances.
- Rental income – non-residents and residents must both declare rental income earned from Australian property on their tax returns.
- Investment income – including dividends from Australian shares, interest earned on Australian bank accounts, and capital gains from selling Australian property or shares.
- Foreign income – Australian tax residents must declare their worldwide income, including earnings from overseas employment, foreign investments, and rental properties. If a double taxation agreement exists between Australia and the country where the income is earned, expats may be able to avoid being taxed twice on the same income.
- Pensions paid by the Australian government or private companies.
- Freelance income earned in Australia.
- Government payments and benefits, such as JobSeeker.
Income tax rates for expats in Australia
In Australia, the income tax rates for expats will vary depending on whether you are classified as a resident or non-resident for tax purposes.
Tax rates for residents
If you are a tax resident in Australia, your income will be subject to progressive tax rates, meaning the more you earn, the higher your rate of tax. As of the 2024-2025 tax year, the tax rates for residents are as follows:
- Up to $18,200: no tax
- $18,201 – $45,000: 16c for each $1 over $18,200
- $45,001 – $135,000: $4,288 plus 30c for each $1 over $45,000
- $135,001 – $190,000: $31,288 plus 37c for each $1 over $135,000
- Over $190,000: $51,638 plus 45c for each $1 over $190,000
In addition to these rates, Australian residents are required to pay the Medicare levy of 2% on their taxable income, which helps fund the public healthcare system. Some residents may be eligible for exemptions or reductions to this based on their income or circumstances.
Tax rates for non-residents
Non-residents for tax purposes are taxed at a higher rate compared to residents and do not benefit from the tax-free threshold. The tax rates for non-residents for the 2024-2025 tax year are:
- Up to $135,000: 30c for each $1
- $135,001 – $190,000: $40,500 plus 37c for each $1 over $135,000
- Over $180,000: $60,850 plus 45c for each $1 over $190,000
Non-residents are not required to pay the Medicare levy, but they are still subject to the higher tax rates from the first dollar of income earned in Australia. Non-residents can’t claim the standard tax offsets that residents can access, which can result in a higher tax bill.
Other tax considerations for expats
Expats should be aware of any double taxation agreements (DTAs) between Australia and their home country, as these agreements can help reduce the risk of being taxed twice on the same income. If you have income from both Australian and foreign sources, a DTA may allow you to receive a tax credit for taxes already paid overseas. In addition, expats who maintain ties to their home country or have specific work-related conditions may be eligible for certain exemptions or reduced tax rates under Australian tax law.
You can consult with a tax professional to ensure you are on the correct tax rate and maximise any deductions or credits that are available to you.
Superannuation and tax implications for expats
Superannuation, also known as super, is Australia’s compulsory retirement savings system, where employers contribute a percentage of an employee’s salary to a superannuation fund. For expats working in Australia, contributions to superannuation will be subject to tax, with the employer typically contributing 11.5% of your salary to your super fund. These contributions are taxed at a concessional rate of 15%.
If you are an expat and leave Australia permanently, you can access your superannuation balance through a process known as the Departing Australia Superannuation Payment (DASP), but it will be subject to tax at varying rates depending on your country of residence and the type of super balance.
Whilst superannuation contributions are generally taxed at a lower rate, non-residents may face different tax rates on their superannuation, especially when it comes to investment earnings. It’s recommended to consult with a financial advisor to understand the tax implications of superannuation while you’re in Australia.
Tax deductions and allowances for expats
Expats working in Australia may be eligible for various tax deductions and allowances, depending on their employment situation and personal expenses. Common deductions can include work-related expenses such as uniforms, travel costs, and home office expenses. Also, if you are required to work in specific conditions or incur costs to earn your income, these may also be deductible.
Expats can claim allowances for certain costs, such as professional development courses if the expense is directly related to their current employment. However, non-residents may not be able to claim some of the deductions that residents are able to. You should keep detailed records of all work-related expenses to ensure that you maximise any eligible deductions and comply with Australian tax laws.
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