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Australia

Individuals are subject to marginal rates of tax that progressively increase with taxable income. The rates of tax differ for resident and nonresident individuals. Resident individuals are taxed on income from worldwide sources (except for temporary residents (see 6.3), while nonresident individuals are only subject to tax on Australian-source income.

In addition to income tax, a 1.5% Medicare levy is payable on the taxable income of Australian residents to fund Medicare, a universal health programme that provides basic medical and hospital care free of charge. Relief is available to low-income taxpayers. A further 1 % Medicare surcharge may be imposed on taxpayers that have no Australian private hospital cover.

Employers are required to contribute 9% of each employee's ordinary time earnings (up to a quarterly salary cap) to an Australian complying superannuation fund. There are certain limited exemptions from these requirements.

Every individual with assessable income in excess of the tax-free threshold is required to file a tax return for each year ending 30 June, by 31 October of that year, unless the individual is on a tax agent lodgement programme and is eligible for an extended filing deadline. Joint tax returns for spouses are not permitted.

Residency
Resident taxpayers are generally taxed on worldwide income, with an offset for foreign tax paid on foreign income up to the amount of Australian tax payable on that income. Australian residents working overseas for a continuous period of 91 days or longer are exempt from Australian tax on their foreign earnings from that continuous foreign service period if the earnings are generally taxable in the country where sourced and are not exempt from tax solely by reason of a tax treaty in the foreign country. Non-residents in Australia are taxable only on income sourced in Australia, and they are exempt from the Medicare levy. However, they do not qualify for tax rebates for dependants, medical expenses and the like. Temporary residents are taxable on their worldwide employment income and on Australian source investment income.

For tax purposes, an individual is resident if he/she ordinarily resides in Australia or satisfies one of three statutory tests: (1) is domiciled in Australia (unless the Commissioner of Taxation is satisfied that the individual's permanent home is elsewhere); (2) has spent more than half the tax year in Australia (unless the Commissioner of Taxation is satisfied that the individual's home is elsewhere and he/she does not intend to take up residence in Australia); or (3) is a contributing member (or the spouse or child younger than 16 years of such a member) to the superannuation fund for officers of the Commonwealth Government.

Taxable income and rates 
Taxable income for personal income tax purposes includes income from employment, business income, certain capital gains, and passive income such as dividends, interest and rental income. Personal tax rates are progressive at rates ranging from 0% to 45%.  
Determination of taxable income 

Taxable income includes income from salaries, wages, business income, dividends, interest, rent and royalties, less business expenses, other expenses incurred in producing assessable income and certain specific deductions that are allowable. Business expenses may be taken as deductions if they are necessarily incurred in gaining or producing assessable income. Expenses of a capital, private or domestic nature are not deductible.

Dividends paid by resident companies from tax-paid revenue carry imputation credits that shareholders may use to offset their personal tax liability. Credits that exceed an individual's tax liability give rise to a refund.

Non-residents are subject to withholding tax on dividends, interest, certain managed investment fund income and royalties from Australian sources. Where a dividend paid to a non-resident is a "franked" dividend (i.e. paid out of fully taxed income) carrying imputation credits, it is exempt from this withholding tax.

Residents in Australia are allowed some tax offsets, including an offset for a dependent resident spouse; a dependent parent; a dependent invalid relative; varying amounts for location in isolated areas; and 20% of the amount exceeding AUD 1,500 for medical, hospital, dental, eye care and pharmaceutical costs.

Capital gains on the disposal of assets acquired after 19 September 1985 are included in assessable income. For assets acquired after 1 October 1999 and held for more than one year, individuals are taxed on capital gains at their marginal rate on half the gain, setting the maximum effective capital gains tax (CGT) rate at 23.25%. For assets acquired before 1 October 1999, individuals may choose between the new system and the old system, introduced on 20 September 1985, under which they are taxed at their marginal rate on the whole of the gain, indexed for inflation. Indexation of the cost base of existing assets was frozen at 30 September 1999.

As noted above, capital gains tax applies only to taxable Australian property disposed of by foreign investors as from 12 December 2006.

Individuals resident in Australia who become nonresidents are liable for CGT in the year of ceasing residence on the unrealised gains on assets they own that are not taxable 
Australian property via a deemed-disposal rule. Such departing residents can elect to defer CGT until an actual disposal occurs, but they are then also subject to CGT on any gains that arise after their departure on all such assets held at the date of departure as these assets become taxable Australian property. There is a limited exemption available for some individuals resident less than five years in respect of assets owned pre-residency under transitional rules that are being phased out.

Special expatriate tax regime 
A "temporary resident" regime came into effect in 2006, which provides temporary residents with a tax exemption for most foreign-source income and capital gains and for interest withholding tax obligations associated with foreign liabilities. A temporary resident for tax purposes is an individual who meets all of the following criteria: holds a temporary visa granted under the Migration Act 1958; is not an Australian resident within the meaning of the Social Security Act 1991; and does not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

As noted above, employers pay FBT on certain benefits supplied to employees. A partial or full exemption from the tax applies to certain benefits provided to expatriates, including relocation travel costs and removal expenses. In addition, if structured correctly, most expatriates on temporary assignment in Australia can be provided with housing, children's education costs and a food allowance tax-free.

Capital taxes 
Some states impose limited capital taxes based on ownership of real estate (known as land taxes). 


Source: Deloitte

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