How TFN, Tax and Superannuation works in Australia
Here is what you need to know about getting your TFN, Tax and Superannuation.
If you plan to work in Australia you need a Tax File Number (TFN). Your TFN is your personal reference number in the Australian tax system. You can apply for a TFN online once you have your acquired work visa.
When applying for a TFN, it is important that you have an address for it to be sent to. It can take up to 28 days to receive this (usually 10 days).
If you don’t have a TFN, you will be taxed more. This is called the top marginal rate, and including Medicare stands at 49%. For most foreign workers not eligible for Medicare this is 47%.
Individuals that have working rights in Australia are also eligible to apply for an Australian Business Number (ABN). More about this below.
If you’re in Australia on a 417 or 462 visa, you have an obligation to pay 15% tax over your taxable income from the 1st of January 2017, for income between $0-$37000. In other words, you cannot work tax free in Australia.
This is a concessional tax rate specific for these visa types, as the standard tax rate for foreign residents for tax purposes is 32.5%. 417 and 462 visa holders are automatically deemed foreign resident for tax purposes since the 1st of January 2017, and cannot access the tax free threshold (tax free income).
If your employer is registered with the Australian Taxation Office (ATO) as an employer of 417/462 visa holders, the employer must verify visas and withhold 15% tax. If the employer is not registered, the employer must withhold the standard foreign resident tax rate (32.5%). If you’re eligible for Medicare, you should ask your employer to withhold an extra 2% for the Medicare Levy. You can find on the Department of Human Services website whether your country has a reciprocal agreement with Australia. If your country does, there is a chance you’re eligible to access the public health system under Medicare.
The employer withholds tax based on gross earnings, yet your tax liability is determined after the end of the financial year based on taxable income. In most cases gross income less deductions equals taxable income, which is generally at least slightly less. This would in most cases cause a small tax refund if tax was withheld correctly.
LODGING A TAX RETURN
When you work in Australia you have a legal obligation to lodge a tax return. This is not an optional action, and failure to lodge a tax return during tax season could result in receiving a penalty for late lodgement. The tax season runs from 1 July – 31 October each year, but lodging through a Tax Agent there is an extension to 15 May the next year.
In Australia, the financial year runs from 1 July to 30 June. All earnings in this period must be reported. Tax lodgments can only occur once per year, and must be done when the financial year has ended (from 1 July on). An exception to this rule exists for temporary residents for immigration purposes who have finished their work in Australia, who will not continue to work in Australia, and are soon leaving Australia. For this your visa does not have to be cancelled or expired.
Only professionals who are a registered Tax Agent or working for a registered Tax Agent are allowed by law to give you advice about your tax return, and lodge your tax for you. These are people who have met the educational and work experience requirements set out by the Tax Practitioners Board. The fee of a Tax Agent is tax deductible for your next tax return.
When a tax return is lodged, a calculation of your gross earnings less any taxable deductions is made. The applicable tax rate is applied to your taxable income to arrive at your tax liability. This amount is compared to the amount of PAYG tax that was paid on your behalf by employers. If the amount of PAYG tax is less, you’ll have a tax debt. If the amount of PAYG tax is more, you will receive a refund of the balance overpaid.
In order to lodge your own tax online through myGov, you must link your myGov account to the ATO and lodge during tax season. Early lodgements cannot be lodged online, and should be lodged through a paper form or through a Tax Agent. If you cannot link your myGov to the ATO, you should call the ATO and request a linking code.
Tax returns lodged online or electronically through a Tax Agent take two (2) weeks to process. The ATO sets a maximum processing time of 50 working days (10 weeks) for the lodgement of paper returns.
Real Backpacker Tip; Interested in coming to Australia to work? Check out what starting essentials you need here.