The Australian income year for tax purposes consists of the 12-month period from 1 July to 30 June.
Tax returns and assessments
A resident individual is required to file an income tax return where taxable income exceeds the tax-free threshold of AUD 18,200 (see the Taxes on personal income section for more information). A non-resident earning AUD 1 or more of Australian-sourced income must file a return. There is no joint assessment or joint filing in Australia.
The income tax return is due for filing by the following 31 October, unless an extension is available for tax agent lodged returns.
The Australian Taxation Office (ATO) will issue an income tax assessment of taxable income/tax loss and tax payable (if any) to the individual based on the income tax return. The Commissioner of Taxation will also issue individual taxpayers who have a tax liability of at least AUD 100 with a tax receipt, which will set out details of how their tax money is spent by government.
Payment of tax
When salaries are paid by an Australian employer or by a non-resident employer from a base in Australia, amounts are required to be withheld from such payments under the pay as you go (PAYG) withholding regime. PAYG withholding tax must also be withheld from payments to contractors if an Australian Business Number (ABN) is not provided by the contractor and the payment amount disregarding GST exceeds AUD 75.
Employees and holders of certain investments must quote their income tax file number to their employer and/or relevant financial institution if they wish to prevent tax from being withheld (at the top marginal rate) on income paid to them. In addition, a tax file number is required to be quoted to employers to prevent tax from being withheld in respect of discounts received with respect to shares and rights/options acquired under an employee share scheme (see Equity compensation under the Income determination section for more information).
A non-final WHT applies to the gross proceeds of the sale of Australian real property or indirect Australian real property interests (broadly, interests of at least 10% held in an Australian entity, whose majority of assets consist of Australian real property), subject to certain exceptions. The current rate of withholding is 12.5%. One of the main exceptions is in relation to the sale of real property with a market value of less than AUD 750,000 or when the transaction occurs on an approved stock exchange. There is also no withholding when the vendor disposes of either:
- Australian real property and provides the purchaser with a clearance certificate (relating to Australian residency) from the ATO, or
- any other asset where the purchaser is given a vendor declaration stating that the vendor is a resident or the asset is not an indirect Australian real property interest.
The rate of withholding can also be varied.
A PAYG withholding regime applies to require the deduction and remittance of taxes on behalf of foreign resident individuals and entities that are in receipt of the following types of payments:
|Type of payment||Rate of withholding (%)|
|Payments for promoting or organising casino gaming junket arrangements||3|
|Payments for performing artists, sportspersons, including payments to support staff such as art directors, bodyguards, coaches, hairdressers, and personal trainers||if recipient is a company, 30|
|if recipient is an individual, the applicable non-resident marginal tax rate|
|Payments under contracts for the construction, installation and upgrading of buildings, plant and fixtures, and for associated activities||5|
PAYG quarterly instalments of tax calculated on certain income derived during the previous quarter are payable by certain individuals. The due dates for these quarterly payments are normally 28 October, 28 February, 28 April, and 28 July.
The tax instalments are based on the total of certain gross income such as fees for services, sales in carrying on a business, interest, dividends, and royalties derived during the previous quarter (but not salary or wages), multiplied by an instalment rate provided by the Commissioner of Taxation to determine the tax payable. The individual may vary this instalment rate, but if this is less than 85% of the rate that should have applied, an interest charge will be payable. Individuals (and some other entities satisfying certain tests) may choose to pay quarterly instalments based on their 'GDP-adjusted notional tax'. If this method is chosen, the instalment payable will be based on the tax of a previous year adjusted for movements in Australia's GDP and the choice will continue until at least the first instalment quarter of the following year. Individuals whose notional tax amount is less than AUD 8,000 and who are not registered, nor required to be registered for the GST, may, in most cases, choose to pay a single annual instalment.
Tax audit process
The ATO will issue an assessment of income tax for each income year and will rely on information and statements made by the taxpayer in the income tax return in making the assessment. However, the ATO can audit the affairs of the taxpayer following the making of the assessment or seek additional information as seen fit.
Statute of limitations
A standard two-year amendment period generally applies to an individual who does not carry on a business (unless the individual is a small business entity), is not a partner in a partnership, and is not a beneficiary of a trust. Otherwise, a four-year time limit applies for amending an income tax assessment. Where an amended assessment increases the taxpayer's liability to tax, an administrative penalty and interest on any underpaid amounts may be levied in addition to the additional tax liability.
Topics of focus for tax authorities
The ATO currently has a privately owned and wealthy groups tax performance programme ('Next 5,000'), which covers Australian resident individuals who, together with their associates, control wealth of more than AUD 50 million. The ATO will use sophisticated data matching and analytic models to identify wealthy individuals and link them to associated entities. The aim of this programme is to provide greater assurance to the community that high wealth private groups are paying the right amount of tax.
The ATO also has a Personal Income Tax Compliance Program that focuses on non-compliance and addressing emerging areas of risk, such as deductions relating to short-term rental properties to ensure they are genuinely available to rent. The following are current areas of focus for the ATO for individuals:
- Work-related expense claims (e.g. working from home expenses, overnight travel, motor vehicle expenses for travel between home and work, work-related proportion of use for computers, phones and electronic devices).
- Rental property income and expenses (e.g. excessive deductions for holiday homes, inappropriate splitting of income and deductions for jointly owned properties, interest deductions being claimed for the private proportion of loans).
- Capital gains from crypto assets, property, and shares.