Even if you end up getting a refund, chances are you’ll still end up paying taxes
Many working holidaymakers who only live and work in Australia for a short time leave Australia expecting to get all of their taxes back in the form of a refund. Many automatically assume that because they are citizens of another country that Australia won’t tax them.
Unfortunately, however, this is not true. Many are shocked to discover when they prepare their tax returns that they aren’t getting everything back or, worse, that they actually owe a large tax bill to the ATO. Here at E-Lodge “Why do I owe so much tax??!!” is a common query from nonresidents.
Here are some tax tips to help working holidaymakers and foreign residents understand their tax situation:
Everything depends on residency (for tax purposes)
Residency for tax purposes is not the same thing as residency for immigration purposes. You can be a citizen of a foreign country and still be an Australian resident for tax purposes. Tax residency depends on how long you have been in Australia and what you’ve been doing here. All the details of tax residency are a little beyond the scope of this article, but you can find more information in one of our previous blog posts.
Resident and nonresident tax rates
Residency is important because different tax rates apply to residents and nonresidents. Nonresidents for tax purposes are actually taxed at a higher rate than residents. To see the full tax rates for every income bracket you can refer to this blog post.
The main point is that residents can take advantage of the tax-free threshold which excludes the first $18,200 of their income from tax. Then their income between $18,201 and $37,000 is taxed at 19%.
Nonresidents on the other hand cannot take advantage of the tax-free threshold. All of their income up to $80,000 is taxed at 32.5%, so you can see how nonresidents in some cases owe much more than residents do.
Thus the only scenario in which you would get all of your tax back, is if you were an Australian resident for tax purposes who made less than $18,200.
Superannuation refunds are taxed too
In addition to a normal tax refund, you may also be able to receive a superannuation refund. Superannuation is Australia’s government-mandated retirement scheme, for which your employer is required to withhold some of your wages. If you worked in Australia on a Working Holiday Visa (Subclass 417) or a Work and Holiday Visa (Subclass 462), you can claim a refund of your superannuation.
Super refunds often turn out to be quite substantial – it’s not uncommon for them to amount to thousands of dollars – but you still won’t get everything back that was withheld. The Australian government taxes super refunds at a rate of 35%.
These taxes are automatically withheld from super refunds. You don’t have to file a tax return with this information and you can’t claim this tax back.
So as you can see, even though you’re only in Australia temporarily, you’ll still pay plenty in taxes to the Australian government. As the old adage goes, they’re as inescapable as death.
Photo via paul bica on Flickr.