Income tax in Australia

Income tax in Australia is the most important revenue stream within the Australian taxation system. Income tax is levied upon three sources of income for individual taxpayers: personal earnings (such as salary and wages), business income and capital gains. Collectively these three sources of income tax account for 67% of federal government revenue and 55% of total revenue across the three tiers of government.

Income received by individuals is taxed at progressive rates from 0 to 45%, while income derived by companies is taxed at a flat 30%. Generally, capital gains are only subject to tax at the time the gain is realised. Income tax is collected by the Australian Taxation Office.

In Australia the financial year runs from 1 July to 30 June of the following year. Income tax is applied to a taxpayer's taxable income, which is calculated, in a broad sense, by applying allowable deductions against the taxpayer's assessable income.

Queensland introduced income tax in 1902 by the Income Tax Act of 1902.

Federal income tax was first introduced in 1915, in order to help fund Australia’s war effort in the First World War. Between 1915 and 1942, income taxes were levied by both State and federal governments. In 1942, to help fund World War II, the federal government took over the raising of all income tax, to the exclusion of the States.

In Australia, income tax on personal income is a progressive tax. The rates for resident individual taxpayers is different to non-resident taxpayers (see below). The current tax-free threshold for resident individuals is $18,200, and the highest marginal rate for individuals is 45%. In addition, most Australians are liable to pay the Medicare levy, of which the standard is 2% of taxable income.

As with many other countries, income tax is withheld from wages and salaries in Australia, often resulting in refunds payable to taxpayers. An employee must quote to employers their tax file number (TFN) so the employer can withhold tax from their pay. While it is not an offence to fail to provide an employer, a bank or financial institution with a TFN, in the absence of this number, payers are required to withhold tax at the rate of 47% (the highest marginal rate plus Medicare levy) from the first dollar. Likewise, banks must also withhold the highest marginal rate of income tax on interest earned on bank accounts if the individual does not provide them with a TFN. In the same way, corporate and business taxpayers are required to provide their TFN or Australian Business Number (ABN) to the bank, otherwise the bank is required to withhold income tax at the highest rate of tax.

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