Tax FAQ


I am in Australia because I have a two year contract with a local employer and have a temporary working visa. I have been told that I am classified as a temporary resident of Australia. Why is this important?

Since 1 July 2006 there has been a separate category for people who are temporarily living in Australia. A permanent resident is generally taxed on all income in and out of Australia but a temporary resident is exempt from paying tax on certain classes of income. People who exhibit the behaviour of a ‘resident’ and hold a temporary visa granted under the Migration Act of 1958 will be taxed at resident rates. Temporary residents may also be liable to pay the Medicare levy unless they are eligible to apply for an exemption.

I have been in Australia for 12 months on a temporary working visa and have been backpacking around the country picking up a few temporary jobs to help with expenses. The payment summaries that I have received from my employers show total earnings of about five thousand dollars. Some employers deducted tax and I have been told that I should get this all back when I put in a tax return.

You would be considered to be a non-resident for tax purposes because you have not settled in any one place and established a home during your stay in Australia. You may not get all your tax back when you lodge a tax return because you will be charged non-resident tax rates. This means that you have to pay tax on every dollar of your taxable income. You will not have to pay the Medicare levy though.

What is the difference between resident and non-resident tax rates?

Non-residents pay tax on Australian source income. They pay tax on every dollar of taxable income as declared on their tax return but do not pay Medicare. Residents have to declare all income earned in and out of Australia. A tax free threshold of $6000 is available to them and a resident may be entitled to claim some tax offsets (rebates) that are not available to non-residents. Depending on their income, a resident may also have to pay the Medicare levy and Medicare levy surcharge.

I have started a second job. Is there anything that I need to do so that I don’t end up with a tax bill at the end of the year?

You cannot claim the tax free threshold of $6,000 from more than one employer at a time. It is better to claim it from your main employer. You will pay a little higher rate of tax on the second job but this should ensure that you have paid enough tax on all of your wages for the year.

I am three years behind in lodging my tax returns. Will I get into trouble?

You should lodge your outstanding tax returns as soon as possible and before the Australian Taxation Office takes any action to have you lodge these tax returns. Once they have begun any action, it could result in a court conviction. The ATO may charge a penalty of $110 for every 28 days that the return is outstanding. The maximum penalty is $550 even if you are due a refund. In addition, the ATO will charge interest. This is called the general interest charge and is levied on any outstanding monies. The rate for the July to September, 2011 quarter is 12.0%.

Can you complete my tax return if I am missing a PAYG Payment Summary (group certificate)?

Your return can be completed using the details from a copy of the PAYG Payment Summary (your employer can provide this), a letter from your employer detailing the information on the PAYG Payment Summary or by reviewing your pay slips for that period. If you are unable to obtain the payment summary details from an employer a Statutory Declaration would need to be completed.

Do I need to bring my partner with me to complete my tax return?

It isn’t necessary but it is helpful as they can assist with family details. There are a number of questions that you may be required to answer concerning dependants, dates of birth and medical details.

My wife stays home to care for our children. During the year she worked for one week and has received a payment summary showing that she earned $480 and a small amount of tax was taken out. She has no other income and doesn’t think she needs to lodge a return because her income is less than the tax free threshold. Is she correct?

Your wife does need to lodge a return even though her income is below the tax free threshold. Any earnings that have had tax withheld, no matter how small, are required to be reported on a tax return. This is the only way to get a refund of the tax paid.

I received an additional PAYG Payment Summary (group certificate) after I completed last year’s tax return. Can I put it in this year’s return?

No you can’t do that. A PAYG Payment Summary from a past year cannot be included with the current year tax return. It can only be included in the return for the year to which it relates. You will need to submit an amendment to last year’s tax return.

My father has died. Do I need to complete a tax return for him?

It is necessary to complete a tax return to date of death if a return has been lodged in past years. This return, marked final, must show all income received to the date of death.

How can I reduce my tax bill?

One of the ways you can reduce the tax you pay is by salary sacrificing in return for employment related benefits. The advantage of salary sacrificing is that your benefit is purchased with pre-tax dollars. There are many things that you can salary sacrifice. All are subject to fringe benefits tax (FBT), except minor benefits such as a mobile phone or laptop computer that are used primarily for work. Motor vehicles are subject to fringe benefits tax but the amount is reduced if the car is used for work. The fringe benefit tax is paid by the employer and is paid at the top marginal rate of tax, including Medicare (46.5%) on the benefit provided. Some employers require their employees to reimburse the FBT amount from their salary package.

Is it a good idea to salary sacrifice into superannuation to reduce my tax bill?

If you salary sacrifice amounts to be paid into a superannuation fund this will attract a contributions tax of 15%. If your taxable income is more than $37,000 the amount that exceeds that level will be taxed at a higher rate. If you sacrifice the amount that exceeds $37,000 then the benefit to you would be more significant. However, any amounts that are sacrificed into superannuation will now also be taken into account for the new income tests that determine liability to pay the Medicare levy surcharge and the entitlement to claim dependent tax rebates and pensioner tax offsets.

I have just left school and about to start my first job. My new employer has asked for my tax file number. How do I apply for one?

Application forms are available from the Tax Office or you can download one from www.ato.gov.au The completed form must be returned to the ATO together with original proof of identity documents. You can mail the documents or take them to an ATO shopfront. You are not able to apply on the internet. When your documents have been examined they will be returned to you and your tax file number will be mailed to you within 28 days. Provided you have applied for a tax file number, you have 28 days to quote your tax file number to your employer after which he is required to withhold tax from your wage at a rate of 46.5%.

I am an overseas student who has recently arrived in Australia to study and would like to know how to obtain a tax file number.

If you are an overseas student living in Australia and have had your visa amended to allow you to work, you can apply for a tax file number (TFN) on the internet. You will not need to provide documentation as proof of identity because the ATO will compare your personal and travel document details with those held on the Department of Immigration and Citizenship (DIAC) system. Provided the matching process is successful a TFN will be mailed to the Australian address that you provided on the application. This internet service is also available to working holidaymakers, New Zealanders who get a visa on arrival and permanent migrants.

When are payers (employers) legally required to issue PAYG Payment Summaries?

Generally payers are required to supply a payment summary within 14 days of the end of the financial year – i.e. 14 July. If an employee ceases employment part-way through the year, one must be supplied within 14 days of receiving a written request from the former employee and the request must not be made any later than 21 days before the end of the financial year. If a former employee has been receiving reportable fringe benefits (RFB) and leaves before the end of March then the 14 day limit may need to be extended.

I usually lodge my own return but will be unable to get it in to the tax office by October 31 this year. What can I do to avoid getting into trouble with the tax office?

If you owe tax and lodge your return late, any amount owing will be payable on the 21 November this year and a general interest charge will be calculated from then until payment is made. The ATO may charge a penalty of $110 for every 28 days that the return is outstanding. Unless you use a registered tax agent, you have from 1 July until 31 October to lodge your return. If you need an extension of time either contact the ATO or a Registered Tax Agent before 31 October.

I am leaving to travel overseas; do I need to complete my tax return before I leave?

It isn’t necessary to complete a return before leaving Australia unless you will not be back before the due date for lodgement of your return (31 October). If you won’t be back until after that date contact the Australian Taxation Office or a registered tax agent to apply for an extension of time to lodge.

I am having some expensive dental work done and wondered if I can claim anything on my tax return?

A net medical expenses offset is available where you and your dependants have incurred out-of-pocket medical expenses in excess of $2,000 (this figure was increased for the 2011 year from the previous threshold of $1,500).  Eligible expenses include doctors’ fees, hospital accommodation and related charges, dental work, medicines, etc. Where procedures are of a cosmetic nature only, they will not be eligible expenses that can be included in a calculation of this offset. If the dental work you are having is for the correction of a problem then the cost incurred will be counted towards the out-of-pocket expenses for this offset.

I am approaching my 55th birthday and have heard that I may not have to pay as much tax?

If you are still working, you may be eligible for a Mature Age Workers Offset for the tax year in which you turn 55 and any future years that you are working. The maximum available offset is $500. You will be entitled to the maximum if your net income from working is between $10,000 and $53,000 but may still get a reduced amount if your income from working does not exceed $63,000. If your only income is from investments then you will not be entitled to this offset.

I am covered by private health insurance and will be turning 65 this year. Will my premium be reduced?

Taxpayers who take out private health insurance are entitled to claim 30% of the premium as a tax offset. This can be taken as a reduced premium, a cash refund from Medicare or claimed through the tax return at the end of the income year. From 1 April 2005 premiums for health insurance policies covering people over 64 years of age have attracted a higher tax offset. If the eldest person covered by the policy is aged 65 or above the offset increases to 35%. Where the eldest person covered by the policy is 70 years or over the offset increases to 40%.

I have had a large pay rise and am worried that I will now have to pay the Medicare Levy Surcharge. Is there anything I can do?

The Medicare levy surcharge is payable where your income is over a threshold amount and you do not have adequate private hospital insurance. The threshold amount for a single taxpayer is currently $77,000 and for families with up to one dependent child it is $154,000. If your income for surcharge purposes exceeds the relevant amount and you do not have private hospital cover, you will pay the surcharge.

Income for surcharge purposes is a new income test and includes amounts previously not considered in determining liability to pay the surcharge. It includes your taxable income, exempt foreign employment income, investment losses as well as reportable fringe benefits and reportable superannuation contributions. If you are unsure whether or not you will be liable to pay the surcharge, you should contact your H&R Block tax consultant.

I have heard that there will be an extra levy imposed on taxpayers to pay for rebuilding after the recent floods. How will this affect me?

The Government announced that it will introduce a Flood Levy for the 2011-2012 income year to assist those communities affected by the recent floods to rebuild essential infrastructure.  Low income earners (with a taxable income of less than $50,000) as well as any taxpayers who are in receipt of an Australian Government Disaster Recovery Payment for a flood event that occurred during the 2010-2011 year will be exempt from paying the flood levy.

Taxpayers with income between $50,000 and $100,000 will pay 0.5% of their taxable income as a result of the new Flood Levy.  For taxable income received over $100,000 an amount of 1% will be payable on this excess.  Employers will deduct extra tax each pay period based on the income earnt in that period to cover the Flood Levy (in much the same way the Medicare Levy is collected) and the actual amount of the Levy will be calculated when you complete your income tax return.

I have to use my car for work purposes and currently salary sacrifice for the expenses.  I’ve heard they are changing how the Fringe Benefit amount will be worked out.  Will this affect me?

The Government has introduced legislation into parliament that will change the statutory formula method for calculating car fringe benefits. Under the current legislation if the statutory formula method is used a taxpayer’s car fringe benefit is determined by multiplying the relevant statutory rate by the cost of the car.  As it now stands, the existing sliding scale of rates provides an increased tax concession for salary-sacrificed or employer-provided vehicles that are driven further. The Government’s feeling was that this sliding scale may have provided an unintended incentive for people to drive their vehicles further than they needed to in order to obtain a larger tax concession.

The current rates will be replaced with a flat rate of 20% and will be phased in over four years.  All car fringe benefits after 7.30pm AEST on 10 May 2011 being worked out under the ‘statutory method’ will (after the transition period) use the flat 20% rate regardless of the distance driven during the tax year.  Employees will still be able to elect to use the ‘operating cost’ (or ‘log book’ method) if they have a higher work related usage of their vehicle and it benefits them more.

I have come to Australia temporarily to fulfil a two year contract with a local company. During the year I took out an Overseas Visitors Health Policy because I am only eligible for restricted benefits from Medicare. Will I have to pay the Medicare levy surcharge?

You are a temporary resident and, if your income for surcharge purposes is over the relevant threshold amount, you will be liable to pay the Medicare levy surcharge. The policy that you have is not sufficient to provide you with an exemption from the levy.

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