Australia Global Payroll and Tax Information Guide
Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and several smaller islands. It is the largest country in Oceania and the world’s 6th-largest country by total area.
Australia’s capital is Canberra and its largest city is Sydney. The main language is English and the official currency is the Australian dollar (AUD). Cryptocurrencies and exchanges are legal in Australia, and the country has been progressive in its implementation of cryptocurrency regulations.
Australia is a member of the United Nations, G20, Commonwealth of Nations, ANZUS Pact, Organization for Economic Co-operation and Development (OECD), World Trade Organization, Asia-Pacific Economic Cooperation, Pacific Islands Forum, and the ASEAN Plus Six mechanism.
For multinational business Australia offers:
- a business environment that is ranked 15th out of 190 economies for ease of doing business
- a robust regulatory system noted for its stable institutional frameworks and strong finance and banking regulations
- competitive rates for office space and the remuneration of professionals
- a quality of life that is rated the 7th highest in the world.
For companies looking to grow their global operations, Australia can be a smart location for overseas expansion. However, there are specific rules for payroll and tax laws that foreign companies should consider. Here’s a guide to the most important things to know.
Ease of doing business in Australia
Australia is one of the easiest places to start a business, ranking 7th out of all countries. However, according to The World Bank trading across boarders in Australia is regarded as very difficult. Both the cost at the port and the time it takes to process each step ranges from three to five times more than the OECD average.
Something else worth noting is that the prices of electricity are the highest in the world. The average electricity consumer in South Australia spends three times what a US consumer would, although US has the cheapest electricity cost out of the high-income countries.
Australia Payroll – Basic Facts
The Australian Taxation Office, known as the ATO, is the revenue collection agency as part of the Australian Government. The ATO introduced one of the latest large-scale changes to Australian payroll through Single Touch Payroll (STP). The ATO is also responsible for many taxation and superannuation support systems for all Australians.
All companies are required to obtain an Australian Business Number (‘ABN’) and Tax File Number (‘TFN’) from the ATO where they are carrying on business or employing staff in Australia.
Taxation is calculated in line with the ATO tax rates and is based on whether the employee is a resident or not. Employees can claim various reductions or additions through the payroll.
If the company is a large remitter for taxation, they are required to pay taxes to the authorities within 7 days of the funds being withheld from the employee. Otherwise, the taxes get paid monthly by the 21st of the following month.
Employers are required to pay superannuation (SA) for employees which must be paid to the authorities by the 28th of the month following/subsequent to each quarter.
It is not mandatory to make payments to employees or the authorities from an in-country bank account.
The standard tax year in Australia runs from 1st July to 30th June.
Australia Tax and Social Security Considerations
Single Touch Payroll (STP)
Single Touch Payroll (STP) is a new way of reporting tax and superannuation information to the ATO. Businesses used to report this information once a year. With the changes accepted, they need to digitally submit a report in a very specific format after each pay day.
STP aims to limit manual reporting of data regarding Pay As You Go (PAYG) withholding and superannuation contributions to the ATO. Processing data via STP involves using government-approved software, listed by the Australian Business Software Industry Association as STP-enabled.
In the new system employers also have the option to pay to the government taxes withheld from employees’ wages at the same time as they report data regarding payments to their employees.
Corporate Income Tax
The full company tax rate is 30% and the lower company tax rate is 27.5%. Eligibility for the lower company tax rate depends on whether you are a:
- base rate entity from the 2017–2018 income year
- small business entity for the 2015–2016 and 2016–2017 income years.
The tax-free threshold in Australia is AUD18,200. The resident tax rates from 1 July 2018 are as follows:
* A Medicare levy of 2% on taxable income also applies to most residents. It is not included on the rates above.
An additional Medicare levy surcharge of 1% to 1.5% on taxable income is levied on individuals with taxable income equal to or exceeding $90,000 who do not have private health insurance.
Income earners with a taxable income of $37,000 or less are entitled to a low income tax offset of $445. This amount is reduced by 1.5 cents for every dollar over $37,000. The new low and middle income tax offset recently accepted is up to $530.
From 1 July 2022 there will be changes in the income range.
A simple tax calculator is available on the ATO website to help you calculate the tax on your taxable income.
When paying payroll tax in Australia, it’s referred to as a Pay As You Go (PAYG). It’s this PAYG system that allows for the withholding of tax from the employee being paid to the ATO.
Payroll tax is a self-assessed, general purpose state and territory tax assessed on wages paid or payable by an employer to its employees, when the total wage bill of an employer (or group of employers) exceeds a threshold amount. Australian payroll tax is calculated on scale based on hours worked and the income generated over that period.
The payroll tax rates and thresholds vary between states and territories. If a company meets the minimum threshold it is held to the following rates:
- ACT – 6.85%
- New South Wales – 5.45%
- Northern Territory – 5.50%
- Queensland – 4.75%. From 1 July 2019 to 30 June 2023, regional employers may be entitled to a 1% discount on the rate.
- South Australia – Variable from 0% to 4.95% depending on wages paid for the full financial year.
- Tasmania – 6.1%
- Victoria – 4.85% or 2.425% for regional employers
- Western Australia – 5.5%
The goods and services tax (GST) in Australia is a value added tax of 10% on most goods and services sales, with some exemptions (such as for certain food, healthcare and housing items) and concessions (including qualifying long term accommodation which is taxed at an effective rate of 5.5%).
If you are a foreign resident, tax is generally withheld in Australia from interest, unfranked dividends and royalties you earn in Australia. Some agreements provide an exemption from withholding tax in certain circumstances. If you don’t, they may withhold tax at the higher rate of 47% (from 1 July 2017).
- 10% for interest
- 30% for dividends
- 20% for royalties
- Employee Social Security– If the employee does not have private health insurance, they are a Medicare Levy Surcharge applies to their taxable income.
The Medicare Levy Surcharge rates are as follows:
*The family income threshold is increased by $1,500 for each MLS dependent child after the first child.
Example: Sarah is 35 years old, single, has no dependants, and does not have the appropriate level of private patient hospital cover. In 2018–2019, her taxable income is $80,000. When Sarah completes her tax return, she also completes the income test section of the tax return and declares:
- reportable fringe benefits of $20,000
- net investment losses of $6,000.
Sarah’s total income for MLS purposes is $106,000 ($80,000 + $20,000 + $6,000), which makes her a tier 2 income earner for calculating the MLS. The amount of MLS is only calculated against taxable income and reportable fringe benefits.
In 2018–2019 Sarah’s Medicare levy surcharge liability is: ($80,000 taxable income + $20,000 reportable fringe benefits) × 1.25% = $1,250
- Employer Social Security- There is no social security in Australia. Superannuation (or Super) is how Australian workers grow their retirement and pension values for the future. Employers are legally required to make payments on the employee’s behalf to a nominated superannuation account. The current rate of Super is 9.5%. Superannuation must be paid to the authorities by the 28th of the month following/subsequent to each quarter and is paid to the employee’s account before tax is taken from wages.
Fringe Benefit Tax (FBT)
Fringe benefits are non-cash benefits for the employee during their employment. It can be for items such as private health insurance, company car, loan or other item allowing the employee to do their job. The FBT rate is 47% of the determined grossed-up taxable value of the benefit provided. The FBT year of coverage runs from April 1st to March 31, which differs from the financial year.
Capital Gains Tax (CGT)
If you sell a capital asset, such as real estate or shares, you usually make a capital gain or a capital loss. This is the difference between what it cost you to acquire the asset and what you receive when you dispose of it.
You need to report capital gains and losses in your income tax return and pay tax on your capital gains. Although it’s referred to as capital gains tax (CGT), this is actually part of your income tax, not a separate tax.
Compensation and Benefits
Minimum Wage: Currently the standard national minimum wage is $719.20 per week or $18.93 per hour, however, each state has its own minimum wage.
Overtime: Overtime pay rates typically are based on a percentage system. There are penalty rates which are paid for work done outside usual hours.
Hours of Work: The maximum workweek is 38 hours.
Holidays: For 2019 there are 8 public holidays, but states or territories can add to these or substitute others in their places. See the full list of Australia public holidays for 2019.
Employee Leaves: Full-time employees are entitled to four weeks of paid annual leave each year.
- Holiday allowance: Paid days off on public holidays unless it’s reasonable to ask the employee to work.
- Annual leave: 4 weeks paid leave per year, plus an extra week for some shift workers.
- Community service leave: Up to 10 days paid leave for jury service (after 10 days is unpaid) and unpaid leave for voluntary emergency work.
- Medical Leave: Includes 10 days paid personal (sick) / caregiver’s leave, 2 days unpaid caregiver’s leave and 2 days compassionate leave as needed
- Parental leave: Paid parental leave is 18 weeks paid at the national weekly minimum wage rate, rounded up to the nearest multiple of $1, if they are the primary caregiver of a newborn or adopted child. Employees also are entitled to 12 months of unpaid parental leave.
- Long-service leave: Employees who have worked for the same employer for an applicable number of years may be entitled to paid long-service leave.
- Jury-duty leave: For each time employees are summoned for jury selection and potential jury duty, they must be paid an applicable amount for the first 10 days of jury selection and jury duty
- Family and domestic violence leave: Up to 5 days of unpaid leave to deal with family and domestic violence.
- Voluntary emergency-management leave: Employees are entitled to unpaid leave to volunteer in emergency-management capacities in response to natural disasters or other emergencies
Wage Payment: Most employees are paid monthly, biweekly, or weekly, either via electronic funds transfer, paper check, or cash. Payslips are required and must be provided within 1 working day of wages being paid. They may be provided electronically.
Bonuses and Special Benefits: In Australia there is a Work Bonus which is an initiative to help older Australians access the benefits of working while getting a pension. The Work Bonus reduces the amount of employment income or eligible self-employment income that we apply to the income test.
You can get the Work Bonus if all of these apply to you:
- you’re over Age Pension age
- you get a pension that’s not the Parenting Payment single
- you’re not getting the transitional rate of pension.
Learn more about the Work Bonus on the Australian Government Department of Human Services website.
Termination of Employment: Employers must provide employees with a minimum period of termination notice or pay instead of notice, as follows:
- employed > 1 year = 1 week of notice
- employed < 1 ≤ 3 years = 2 weeks of notice
- employed < 3 years ≤ 5 years = 3 weeks of notice
- employed < 5 years = 4 weeks of notice.
Workers’ Compensation: Each state government regulates the workers compensation scheme in that state. The various schemes are administered in different ways and insurers may have different roles within the schemes.
To learn more about workers compensation schemes in Australia visit the relevant website of the state or territory’s government agency that is responsible for overseeing the workers compensation and injury management system.
Record Keeping: All employment-related records (including tax records) generally must be kept for a minimum of 7 years.
Foreign Workers in Australia
Visas: Unless you are an Australian or New Zealand citizen, you will need a valid Australian visa to enter the country. New Zealand passport holders can apply for a visa upon arrival in the country. All other passport holders must apply for a visa before leaving home. You can apply for a range of visas, including tourist visas and working holiday visas, at the nearest Australian Embassy or Consulate. The most common way for foreign workers to enter the country is through the Temporary Skill Shortage (TSS) visa, which will allow employers to sponsor skilled overseas workers for occupations approved by the government.
All the types of visas are listed on the Australian Department of Home Affairs website.
The visa-waiver program for business visitors allows Australians to travel to the US for 90 days or less for business-specific purposes without having to obtain a B-1 business visa. Stays longer than 90 days require a visa.
Taxes: Temporary residents (they possess a temporary resident visa) generally are treated as non-residents with only Australian sourced income being subject to tax in Australia. Foreign-source income is not taxed and the attribution rules do not apply.
These rates apply to individuals who are foreign residents for tax purposes for 2019- 2020:
Australia has entered into more than 50 income tax treaties, including an income tax treaty with the United States. Australia also has a totalization agreement with the United States for social tax coverage purposes.
Australia currently has 10 free trade agreements in force with China, Japan, Republic of Korea, New Zealand, Singapore, Thailand, US, Chile, the Association of South East Asian Nations (ASEAN) (with New Zealand) and Malaysia. Australia concluded negotiations of the Trans-Pacific Partnership Agreement in October 2015.
While establishing a business in Australia is straightforward and easy process, paying employees can be challenging due to Australia’s complicated employment laws. A Global Payroll Management Software solution like Payslip can help your multinational organization to reduce the risk and maximize the benefits of your company’s international expansion.
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- Wikipedia: “Australia”
- Austrade (Australian Trade and Investment Commission): “Business”
- Payroll Tax Australia: “About Payroll Tax”
- Payroll Tax Australia: “Payroll Tax Rates and Thresholds”
- ATO: “Single Touch Payroll (STP)”
- ATO: “Changes to Company Tax Rates”
- ATO: “Individual income tax rates”
- ATO: “Personal Income Tax Plan”
- ATO: “M2 Medicare levy surcharge (MLS) 2019”
- ATO: “Super for employers”
- Queensland Government: “Payroll tax rates and thresholds”
- The World Bank: “Doing Business in Australia”
- ATO: “Capital gains tax”
- Australian Government for Treasury: “Income Tax Treaties”
- ATO: “Income tax rates for foreigners”
- Australia: “Visa, customs and quarantine FAQ”
- dingoos.com: “Visas for Australia”
- Australian Government: “Immigration and Visas”
- Australian Government Department of Home Affaires: “Visa list”
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