You must have a Tax File Number
As in other countries, also in Australia you must pay income tax on the money you earn. In order to do this, you must be able to be identified by the Australian Tax Office (ATO) (ato.gov.au). Australia does not use social security numbers, instead personal identification numbers have been introduced for tax issues, called Tax File Number (TFN). Your TFN is unique to you and your tax, its purpose is to help ATO to match tax instalments to the right person. When you sign a contract with your employer, you must enter your tax file number so that your tax is paid into the correct account.
Your TFN is a 9-digit number and is easy to obtain through ATO’s website once you are in Australia. It is free to get a TFN, anyone who tries to get paid by helping you with this is trying to trick you on money by doing something that you easily can fix on your own. Once you submit your application, it will take 2-4 weeks before you receive your TFN.
When you apply for a TFN, you must also provide an address to the ATO. If you are a new arrival in the country, or are on the road without a fixed address, you can use a friend’s or your hostel’s address as your C/O address (and ask them to take care of your mail for you), or a “mail forwarding” service. It is therefore not a problem, for example, to land in Cairns and there apply for both a TFN and a bank account, and then use these tax and bank details when you travel around the country.
An alternative to arrange a local address is using a “Mail Forwarding “Service from a private company. One company I can recommend is Hotsnail (hotsnail.com.au) which I personally used. They opened and scanned my post in Australia when I was travelling abroad (in my case, I forwarded all mail from my Sydney apartment to them, but for you who are a student, or a backpacker, you can choose to use their address directly).
You can find more information about how paying tax in Australia works and how to use your TFN on ATO’s website under Tax File Numbers Overview (ato.gov.au/Individuals/Tax-file-number). For those of you travelling on a Working Holiday, ATO has a special page with a good overview of how the tax system works (ato.gov.au/Individuals/International-tax-for-individuals/Coming-to-Australia/Working-holiday-makers).
To apply for your own TFN, use ATO’s webpage Online Tax File Number Application (ato.gov.au/Individuals/Tax-file-number/Apply-for-a-TFN). You must be in the country when you apply for your TFN, and once the application is in, it takes 2-4 weeks to get your TFN. If you have non-English letters in your name (for example Å Ä Ö), use the same spelling as on your passport (where, for example, the name Södergård is spelled Soedergaard) to avoid having problems with your name in the Australian English IT-system.
Also, keep in mind that your TFN is a way to identify yourself. To protect yourself from identity theft, you should be cautious about who you provide your TFN to.
You only need to apply for a TFN number once in a lifetime, no matter how many times you go to Australia. If you get a TFN when you are in the country as a student at the age of 22 and then come back on a Working Holiday visa five years later and do some work, you use the same personal TFN. You don’t have to wait to apply for a TFN before you start looking for a job – you need to provide your Tax File Number as soon as possible to your employer in order for them to pay you your salary. You can tell them that your TFN is on the way and that you will give it to them once you get it. If you haven’t yet applied for a TFN when starting a job, you must do it then and you just have to wait patiently for the salary until your TFN arrives.
To lodge a tax return
When you lodge a tax return, you state what you earned during the year and either you will pay extra tax, or you will receive a tax return (get money back). If you have received a salary during your time in Australia, you should pay tax, even if you have only spent a few months in the country during a Working Holiday stay. In order to determine which tax rate that applies to you, ATO assesses what tax residency that applies to you; if you are a guest worker with a foreign tax residency or an Australian resident for tax purposes. The rules that determine the tax residency are posted on ATO’s website under the section Work out your tax residency (ato.gov.au/Individuals/international-tax-for-individuals/work-out-your-tax-residency), and the rates are generally lower for those with an Australian tax residency.
The tax you must pay is calculated based on your income during the past financial year, which runs from July 1 to June 30 each calendar year. The tax rates for each year can be found on the ATO’s page Individual Income Tax Rates (ato.gov.au/rates/individual-income-tax-rates). The last day to lodge your tax is on the 31st of October each year and most people do this online via ATO’s website and their service myTax (ato.gov.au/Individuals/Lodging-your-tax-return), which require that you create a myGov account first (my.gov.au).
You can find a good overview regarding tax returns at ATO’s website Lodging your first tax return (ato.gov.au/individuals/lodging-your-tax-return/lodging-your-first-tax-return).
If you go back to your home country before it’s time to lodge the tax, and you think you might be eligible for getting a tax return, you can lodge in advance. This is called Lodge Early, and how you do this is explained on ATO’s webpage Leaving Australia – What you need to know (ato.gov.au/Individuals/International-tax-for-individuals/Going-overseas/When-you-leave-Australia) and the webpage Lodging your tax return early (ato.gov.au/individuals/international-tax-for-individuals/going-overseas/lodging-your-tax-return/lodging-your-tax-return-early).
When you ask for a tax return; Remember to also apply to receive the pension that was paid into your Australian pension account by your employer. Read more about this in the pension section below.
When you lodge your tax, you must specify whether you are a Resident for Tax purposes or not. For most visitors who are in the country and do some work, the answer is yes. For example, if you are in Australia on a Working Holiday visa and have been in the country for more than 6 months during the financial year, you will be a Resident for Tax purposes. In the same way, ATO considers that your tax residency is Australia if you are in the country to study for more than six months.
Don’t forget to keep track of your salary specifications, where it says who you worked for and how much was paid in tax for you. At the end of the financial year, or at the end of your employment, you will receive a statement from your employer, stating your total salary and total tax paid. Save that paper, called an PAYG, it is very useful when you later need to lodge your tax. Also, make sure you have an Australian bank account so you can receive your tax return.
To hire a tax agent to lodge your tax
If you do not want to lodge your tax yourself, you can pay a company to help you, and these companies are called tax agents. I always lodge my tax on my own, but if you rather hire someone to do the work for you, then Taxback.com (taxback.com) is a company that I have heard that many Swedish backpackers and overseas workers have been satisfied with.
Tax rates
The income tax (the tax you pay based on your salary when working) is progressive, which means that you pay a higher percentage of your income the more you earn. VAT (value-added tax) in Australia is called G.S.T. (Goods and Services Tax) and is at 10%.
You will find the tax rates for individuals for the financial year 2018-2019 on the ATO’s page Individual Income Tax Rates (ato.gov.au/Rates/Individual-income-tax-rates) and in tables below.
Tax rates 2018-2019 for Australian residents
If you are a resident for tax purposes, the income for the financial year 2018-2019 means that all income under $18,200 is tax-free. The highest marginal tax is 45% for an annual income over $180,000. In addition to income tax, most Australian households also must pay a Medicare tax (to cover medical expenses) of 2%.
The table below summarizes the income tax you must pay on money earned during the financial year 2018-2019 (does not include Medicare tax).
| Income | Tax to pay | Total tax rate |
|---|---|---|
| 0-$18,200 | Nil | 0% |
| $18,201-$37,000 | 19¢ on every $1 over $18,200 | 0 to 9.65% |
| $37,001-$90,000 | $3,572 plus ¢32.5 on $1 over $37k | 9.65 to 23.11% |
| $90,001-$180,000 | $20,797 plus ¢37 on $1 over $90k | 22.78 to 30.05% |
| $180,001 and up | $54,097 plus ¢45 on $1 over $180k | 30.5 to 45% |
Tax rates 2018-2019 for foreign residents
If you’re Not an Australian resident for tax purposes, but instead is taxed as a foreign resident on a temporary visit to Australia, the tax rates for the financial year 2018-2019 are different. As a low-income taker, you must pay 32.5% in tax, this is then gradually raised to 45% for the highest annual income.
The table below summarizes what income tax you as a non-resident must pay on money earned during the financial year 2018-2019 (does not include Medicare tax).
| Income | Tax to pay | Total tax rate |
|---|---|---|
| 0-$90 000 | 32,5¢ on each $1 earned | 32,5% |
| $90 001-$180 000 | $29,250 plus ¢37 on each $1 over $90k | 32,5% to 34,8% |
| $180 001 and up | $62,550 plus ¢45 on each $1 over $180k | 34,8% to 45% |
For low-wage earners, it is therefore quite a lot of money in distinction between being assessed as a resident or non-resident for tax purposes.
Pension
The pension system is called Superannuation, which is often shortened Super in general wording (en.wikipedia.org/wiki/Superannuation_in_Australia). For you as an employee, it is important to know that your employer is required to pay 9.5% of your salary in a pension fund (you can choose which fund your pension funds are deposited in).
For those of you who are permanent residents of Australia, each month you receive money into your pension account and when you retire you can hopefully live on this money. For those of you who are only in Australia for a short time, there is the possibility to withdraw your pension funds prematurely when you go back home.
Getting your pension money early is called to receive a Departing Australia Superannuation Payment (DASP), and the easiest way to do this is to do a free application at ATO via their website (ato.gov.au/Forms/Applying-for-a-Departing-Australia-super-payment).
Frequently asked questions about Australian tax and pension
Since the first edition of my book came out in 2012, I have received many reader letters and blog comments with more specific questions about lodging your tax. Here is an attempt to summarize the most frequently asked questions.
Question: What happens if I don’t lodge my tax, or don’t lodge in time? What are the consequences?
Answer: According to ATO’s website, you can get a fine if you do not declare on time (ato.gov.au/General/Interest-and-penalties/Penalties/Failure-to-lodge-on-time-penalty). And if you owe the Australian state tax you can be punished with extra charges (ato.gov.au/General/Interest-and-penalties/Penalties/Failure-to-lodge-on-time-penalty).
Question: How do I lodge my tax? Is there any guide I can read?
Answer: To lodge online through ATO’s website by using myTax is the easiest way. Their website explain exactly how you do it (ato.gov.au/individuals/lodging-your-tax-return/lodge-online).
Question: How does paying tax work if I only work for a few months during my working holiday visa? Do you pay taxes on earned money or not? If so, which country do I pay to? My home country or Australia?
Answer: You pay tax on your salary just like when you work at home, but you pay the tax to the Australian Tax Office when you work here. In most cases, your employer will pay the tax for you, directly to the ATO, and you will receive your salary (minus the amount of tax that has been withdrawn) into your Australian bank account. When you lodge your tax (the financial year runs from July 1st to June 30th), your final tax is determined for that financial year and you will find out if you receive a tax return or if you must pay more tax.
Question: I have now lodged my tax, but how do I know that what I did was correct? Will the money just show up on my account one day, or do I have to apply separately for my tax return? How does it work?
Answer: You can lodge your tax immediately after the tax year expires (i.e. in early July), but please wait a few weeks until various companies such as your bank, your insurance company, and your employer have compiled and sent you and ATO its respective statement. With the use of these documents (like the PAYG summary where your total salary and paid tax is stated) you then submit your tax, and then it usually takes 2-4 weeks until you get your final answer by email or post, and then another week until your tax return (if applicable) will show up on the bank account you entered when lodging.
Question: I work for a large company that basically only hires backpackers. They have asked me to get an ABN instead of a TFN, which I understand means that no tax will be paid. What should I do?
Answer: By hiring you as a self-employed person instead of hiring you as a private individual, your employer is trying to get away from the responsibility that comes with having employees. Instead of taking care of your taxes and your salary for you, as they should when hiring you (as a private individual), they are telling you to start a small one-man business which means you need to get an ABN (Australian Business Number). If you agree to this, you will be responsible for doing the accounting for your sole-trader company, and to lodge your tax correct (a bit more complicated when you lodge as a sole-trader than as an employee). A simple solution for them, but a bit low, especially if they do not remind you to charge extra money for your extra administration costs, and for the G.S.T that you as a one-man entrepreneur might be required to pay in your tax return. Unless you previously have worked as a sole-trader, I suggest you look for another employer, but if you still want to go ahead with starting your own business, you can read about how to start as a Sole Trader at the Australian Government website for companies, Business.gov.au (business.gov.au/planning/business-structures-and-types/business-structures/sole-trader).
Question: Can I get my tax return paid to an overseas bank account?
Answer: Unfortunately, I have never heard of anyone who’s tax return from Australia was paid directly into their overseas bank account. If you have left the country and do not have an Australian bank account anymore, you can investigate the possibility of getting the money paid to a friend’s account instead.
Question: How can I in advance calculate how much tax I can get back after lodging my tax?
Answer: On ATO`s website you will find the tool “Simple Tax Calculator” which will help you estimate how much tax you are liable to pay (ato.gov.au/calculators-and-tools/simple-tax-calculator).
Question: Since 1st of August, I have worked at a café in Sydney and I will go back home in March (3 months before the end of the tax year). How do I lodge my tax in advance?
Answer: You can lodge it in advance if you are about to leave the country. Unfortunately, I think you must lodge on paper since the online service (at east last time I checked) does not allow you to lodge before the financial year is over. A few years ago, I fixed a paper application for a friend to declare in advance, but perhaps it is easiest to talk to a company that can arrange your declaration for you, for example TaxBack.com (taxback.com).
Question: I have been living in Sydney for over 6 months but are worried that ATO won’t see me as a resident. What can I do to increase my chances of being considered a “resident for tax purposes”?
Answer: If the tax authority after you have lodged your tax, deem you to be a non-resident, you may consider appealing against the decision and, in the case of an appeal, submit proof that you in fact are a resident. Examples include receipts of rental payments, bank statements, and bills that show that you have lived and worked in one place throughout your time in the country, and that your intention is to stay for a longer period in the country.
Question: I was in Australia for a little more than 7 months last year (from late April to early December) of which I worked for just over four months after the 1st of July. To be considered a “resident”, must I have been a resident in Australia for 6 months during the financial year (1/7 to 30/6), or is it sufficient if I fill in the total number of months I have been in the country even if it was during two different financial years?
Answer: Whether your 3 + 4 months that is spread over two years is enough to see you as a resident in order to get lower taxes, I do not know, it will be up to the individual officer of the ATO to assess.
Question: My boss says I will get a PAYG-summary that I’ll use when I lodge my tax. What is it?
Answer: PAYG stands for Pay-As-You-Go and is the name of the system used for reporting your income tax every month. A PAYG-summary is a summary of your salaries and payments during the financial year and compiles the information from all that year’s pay slips.
Question: Is it a requirement to have been in Australia for 6 months if you want to apply to get your superannuation back?
Answer: No, as I understand it, you can get your pension paid out no matter how long you have been in the country.
Question: I have heard that you must stay for at least 6 months in Australia to be able to recover your tax. Is that true?
Answer: You always have the right to get your tax return if your employer paid too much, but why one often talk about 6 months is because after that time frame it gets easier for you to be classified as a resident for tax purposes, which gives you a lower tax rate.
Question: What is it that determines if you have paid too much tax and thus can get a tax return? Or is it only “Superannuation” that can be paid out if you go back home?
Answer: A potential tax return is determined only at the end of the financial year, which runs between 1/7 and 30/6 each year. The total amount you earned and what tax your employer has paid, is compared against the tax tables, and either you receive a tax return or must pay more tax. Your pension can only be payed-out if you do not have any plans to stay in Australia, and this is a separate application.
Question: On ATO’s website (www.ato.gov.au/Individuals/Ind/Resident-for-tax-if-WHM) they write that people in the country on a Working Holiday visa are not seen as a resident for tax purposes. What’s the deal?
Answer: With the reservation that I am not a tax lawyer; This is a grey zone. Working Holiday travellers who mostly travel around and whose obvious primary goal of being in Australia is to have a vacation, have difficulties being classified as “residents for tax purposes”. On the other hand, those who stay in one place and clearly show that their primary purpose in going to Australia is to live and work in the country, they seem to have it easier when it comes to being classified as a “resident for tax purposes”. I have heard about many backpackers who got a tax return. I think the secret is to emphasize that you worked a major part of the financial year, and to be able to show that you live and behave in the same way as other people who are residents, and that you are here to work for a long time.
Question: Do you know if companies are required to issue pay slips? I have fallen into trouble with my boss and have quit my job. This is on a farm and now they do not want to give me any pay slips. Do you know whom to turn to?
Answer: Of course, they must give you your salary information. Threaten to go to the Fair Work Ombudsman (fairwork.gov.au) and ask for help there if you do not get any pay slips from your former employer.
Question: I have been in Australia for a couple of years as a student and worked part-time parallel to my studies. Now it’s time for me to go home. Can I wait to request my pension, or how does it work?
Answer: If you have been in Australia on a temporary visa, your pension will burn in unless you ask for a payout within 6 months of your visa’s expiry date. Asking for the pension to be paid out as a lump sum is quite simple if you follow the information from the ATO on these two pages: (ato.gov.au/Forms/Applying-for-a-Departing-Australia-super-payment) and (ato.gov.au/individuals/international-tax-for-individuals/in-detail/super/super-information-for-temporary-residents-departing-australia).