Social security contributions
There are no social security taxes in Australia. However, a levy is imposed on taxable income and reportable fringe benefits of residents for the funding of a National Health Scheme (Medicare). The Medicare levy is currently 2%. No levy is payable by those with taxable income below the relevant low income thresholds.
A surcharge of between 1% and 1.5% applies to high income taxpayers where the taxpayer and their dependants are not covered by a private health insurance fund registered in Australia that provides basic hospital cover.
Both employers and foreign nationals working in Australia should take care in choosing a health fund which both qualifies for the exemption from the Medicare levy surcharge and provides adequate cover because it is possible to have a policy that provides full cover but does not also exempt the policy holder (and their family members) from the surcharge and vice versa. Proper advice should be sought from a tax expert to ensure that the policy covers both aspects.
Superannuation and retirement taxation
Employer supported and self-employed contributions to 'complying' superannuation entities and retirement savings accounts (RSAs) in Australia play a role similar to that of social security levies. The retirement benefits provided by these superannuation entities (which are independent of government, but have to comply with regulations so they are 'complying') are in addition to a means-tested age pension that is provided by the federal government.
The rules governing the taxation of superannuation entities are complex. Below is a brief summary of the current law.
Employers must contribute on behalf of their employees' superannuation a set minimum percentage of the employee's earnings base, subject to limited exceptions, or be liable to a superannuation guarantee charge. The required superannuation guarantee percentage is currently 9.5% where it will remain so until 30 June 2021. From 1 July 2021, the rate will increase to 10% and will progressively increase up to 12% from 1 July 2025.
It is usually tax effective (subject to certain limits) for employees to forgo or 'sacrifice' part of their salary to allow employer superannuation contributions on their behalf above this minimum. There is no limit to the amount of contributions that can be claimed as a deduction. However, there are limits on the amount that can be contributed per individual per income year that are eligible to receive concessional (favourable) tax treatment. Concessional superannuation contributions can be made on behalf of an individual up to AUD 25,000 per annum. Individuals with superannuation balances of less than AUD 500,000 also have the ability to carry forward unused concessional contributions from up to the five previous financial years, and use the amounts to make additional concessional contributions during a particular financial year.
Individuals can also make non-concessional contributions to a superannuation fund (i.e. contributions that are not deductible). The annual non-concessional contribution cap is currently AUD 100,000 per year, subject to a three-year bring forward rule for those individuals aged under 65 years (and subject to a transitional rule where contributions made prior to 1 July 2017 will affect the total non-concessional contributions capacity over the following two years). The non-concessional cap is nil if the individual has a total superannuation balance greater than or equal to AUD 1.6 million as at 30 June of the previous financial year.
Individuals aged 65 years or over can use the proceeds from the sale of their main residence to make ‘downsizer contributions’, limited to the lesser of AUD 300,000 and their share of the sale proceeds. These contributions are not tax deductible, and can be made regardless of other contribution caps and voluntary contribution restrictions.
Generally, contributions made to complying superannuation funds together with the fund's earnings are subject to tax at the rate of 15% payable by the fund. The concessional rate of tax on contributions is effectively limited such that fund contributions made in respect of individuals with combined taxable income, total net investment losses, reportable fringe benefits, and concessionally taxed superannuation contributions exceeding AUD 250,000 are subject to additional tax at 15% on those contributions that exceed the threshold.
Under the First Home Super Saver Scheme, an individual can apply to release voluntary superannuation contributions, along with associated earnings, to help purchase their first home, subject to meeting certain eligibility requirements. Concessional tax treatment applies to amounts withdrawn under the scheme.
Temporary economic stimulus measures introduced as part of the Federal Government’s economic response to COVID-19 also allow early access to superannuation by allowing affected eligible individuals to make tax-free withdrawals of superannuation up to AUD 10,000 in the 2019/20 financial year and a further AUD 10,000 in 2020/21.
Generally, all superannuation benefits received by an individual aged 60 or over are tax-free where those benefits are paid from a taxed source. However, the tax treatment of other superannuation benefits may depend on factors such as the components of the benefit, the amount of the benefit, the age of the member when the benefit is received, and whether the benefit is received as a lump sum or as a superannuation income stream.
Certain superannuation income streams are subject to minimum drawdown rates. These rates have been temporarily reduced by 50% for the 2019/20 and 2010/21 financial years as part of the Federal Government Stimulus Package for COVID-19.
The federal government levies goods and services tax (GST) at a rate of 10%. The GST is a value added tax (VAT) applied at each level in the manufacturing and marketing chain. It applies to most goods and services, and registered suppliers get credits for GST on inputs acquired to make taxable supplies. Supplies of digital currency receive equivalent GST treatment to supplies of money.
Food, with some significant exceptions, exports, most health, medical, feminine hygiene products, and educational supplies, and some other supplies are 'GST-free' (the equivalent of 'zero-rated' in other VAT jurisdictions). A registered supplier of a GST-free supply can recover relevant input tax credits, although the supply is not taxable.
Residential rents, the second or later supply of residential premises, most financial supplies, and some other supplies are 'input-taxed' ('exempt' in other VAT jurisdictions) and are not subject to GST. However, the supplier cannot recover relevant input tax credits, except for financial suppliers who may obtain a reduced input tax credit of 75% of the GST on the acquisition of certain services.
Health insurance is GST-free, life insurance is input taxed, and general insurance is taxed. 'Reverse charges' may apply to services or rights supplied from offshore, where the recipient is registered or required to be registered, and uses the supply solely or partly for a non-creditable supply.
GST applies to cross-border supplies of digital products and services imported by Australian consumers. GST is payable on certain supplies of low value goods (valued at AUD 1,000 or less) that are purchased by consumers and are imported into Australia.
Purchasers of ‘new residential premises’ or ‘potential residential land included in a property subdivision plan’ are required to withhold and remit to the ATO an amount on account of GST.
Net wealth/worth taxes
Australia does not have a net wealth tax.
Inheritance, estate, and gift tax
Australia does not have inheritance, estate or gift taxes. However, special tax rules apply to:
- the transfer of assets to a beneficiary from a deceased estate for capital gains tax purposes and
- the transfer of superannuation entitlements to beneficiaries of a deceased person.
All the states and territories of Australia impose land taxes on landowners based on the unimproved value of the land they hold, subject to certain exemption thresholds, exemptions for a principal residence, and land used for certain purposes. Municipal councils also levy rates and other charges on land within their municipalities.
Some Australian states impose a duty or land tax surcharge on certain Australian real estate holdings of a 'foreign person', which generally includes a foreign natural person, corporation, or trustee of a foreign trust. In addition, there is now an annual vacancy fee imposed at the Federal level on a foreign owner of Australian residential property that is essentially vacant for at least half of a year and that was acquired at any time since 7:30 pm AEST 9 May 2017 (see Other issues section for further information).
Excise duties are imposed at high levels on beer, spirits, liqueurs, tobacco, cigarettes, and petroleum products. Excise rates for tobacco and alcohol are indexed biannually based on movements in the consumer price index (CPI). Some examples of current excise rates include:
- Beer not exceeding 3% by volume of alcohol packaged in an individual container not exceeding 48 litres: AUD 44.05 per litre of alcohol calculated on that alcohol content by which the percentage by volume of alcohol of the goods exceeds 1.15.
- Tobacco in stick form not exceeding in weight 0.8 grams per stick actual tobacco content: AUD 0.94964 per stick.
- Petroleum condensate, crude petroleum oil, and diesel: AUD 0.423 per litre.
- Liquefied petroleum gas, other than liquefied petroleum gas exempted from excise duty: AUD 0.138 per litre.
A fuel tax credit system provides a credit for fuel tax (excise or customs duty) that is included in the price of taxable fuel. Broadly, credits are available to entities using fuel in their business and to households using fuel for domestic electricity generation and heating.
All states and territories of Australia impose stamp duty at various rates on various transactions or documents, such as real property conveyances, motor vehicles, insurance policies, and contracts effecting the transfer of real estate or interests therein. The imposition of duty on share transfers involving unlisted entities differs from state to state. Stamp duty is levied by the states and territories, as a result, the range of exemptions and rates vary.
Imports into Australia are subject to duties under the Australian Customs Tariff. The top duty rate is 5%.
Fringe benefits tax (FBT)
Fringe benefits are not taxable in the hands of the employee. Instead, a separate tax collection procedure applies to fringe benefits, with the tax known as FBT, which is levied on the employer (see Non-cash benefits in the Income determination section for more information).