Can Expats In Australia Claim Any Tax Deductions Or Rebates?

Every country has its own set of laws regarding tax deductions. By definition, a tax deduction is an expense that can reduce the tax you need to pay. This is deducted from a business or individual’s gross income, thus reducing the taxes owed.

If you are an expat in Australia, understanding the tax system of your second home is critical. What’s even more important is meeting these obligations on time. You also have to make sure that you settle your responsibilities in Australia and your home country.

Tax Deductions And Rebates For Expats In Australia

Understanding The Australian Tax System

In Australia, the Australian Taxation Office (ATO) is the tax authority in charge of tax-related transactions and inquiries. The tax year in Australia starts July 1 and ends June 30, with the tax return due date set for October 31.

The ATO has provided specific criteria for residents and non-residents of Australia. This is the first thing you need to understand to know your tax obligations.

To simplify it, Australians living overseas fall under the category of non-tax residents. If you are an Australian expat living in another country with a low or zero chance of returning home, you will be tagged as a non-resident but only for tax purposes.

On the other hand, you are a resident only in tax tagging if you are an expat living, working, or studying in Australia, regardless of nationality, for more than six months. The ATO, though, offers some flexibility in this and has established a four-way test to identify the full extent of your residency status.

These tests are:

  • Resides Test – You get tagged as a resident if you have lived permanently or at least for a considerable time in Australia and have a base home or settled in a specific residence within the country.
  • Domicile Test – You’ll be taxed as a resident if your main permanent home or domicile is in Australia.
  • 183-Day Test – If you have been in Australia for at least 183 days, your tax tagging will be resident. This has an exception, though, if your home headquarters is outside the country and you have zero intention or plan of having an abode in Australia.
  • Commonwealth Superannuation Fund Test – You will be considered a resident under this test if you are an active employee of the Australian Government or any Australian company and are eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS). Your spouse and children below 16 will also be tagged as residents.
If you don’t meet any of the stipulated conditions of any of these tests, then for tax purposes, you are a non-resident.

Note that in Australia, non-residents have higher tax rates compared to residents. When tagged as such, you won’t profit from the tax-free threshold. You are also not required to pay the 2% Medicare levy and the foreign income.

Tax Obligations For Expats In Australia

Understanding your tax tagging, whether as an expat, you are a resident or non-resident, dictates the amount of tax you are mandated to settle.

Expats who are residents for tax purposes are required to pay tax on all their income, regardless of where they earned it. You are to declare all the income you earned in Australia and any other country in your annual Australian tax return, even if you have already settled your tax obligations to your home country.

On top of your income tax as a resident, you are also mandated to pay the Medicare Levy and the capital gains tax. ATO will add your capital gains to your global income and then set the tax based on the net total.

However, expats who are non-residents only pay taxes on the income that they earn or derive from sources in Australia. But this also entails you, declaring all the sources of that Australian income, whether from your employment, rental, capital gains, or your Australian pension.

Regardless of being tagged as residents, expats are expected to pay their Australian tax and submit a return with ATO, especially if they have your tax file number.

Here’s an overview of the income tax rates of residents and non-residents:

For Australian residents:

Range of Income

Income Tax Rate

AUD 0 to AUD 18,200

Not Applicable

AUD 18,201 to AUD 37,000

9 cents (c) for each AUD 1 over AUD 18,200

AUD 37,001 to AUD 90,000

AUD 3,572 plus 32.5c for each AUD 1 over AUD 37,000

AUD 90,001 to AUD 180,000

AUD 20,797 plus 37c for each AUD 1 over AUD 90,000

More than AUD 180,001

AUD 54,097 plus 45c for each AUD 1 over AUD 180,000

Note: These rates don’t include the mandatory 2% Medicare levy.

For non-residents:

Range of Income

Income Tax Rate

AUD 0 to AUD 90,000

32.5c for each AUD 1

AUD 90,001 to AUD 180,000

AUD 29,250 plus 37c for each AUD 1 over AUD 90,000

More than AUD 180,001

AUD 62,550 plus 45c for each AUD 1 over AUD 180,000

Common Tax Deductions And Rebates For Expats In Australia

Expats can lodge their tax-deductible expenses in the free app that the ATO uses. These standard tax deductions vary primarily based on your employment, industry, and tax purposes tagging (i.e., resident vs. non-resident).

In general, some of the typical tax deductions that expats may encounter while in Australia are:

●       Employment Expenses

When work-related expenses are not reimbursed, residents and non-residents can deduct duly validated expenditures incurred while in active employment. Examples of these expenses are business or work-related travel expenses, subscriptions to trade organizations, and, during the pandemic, COVID-19 test kits used to test employees to see if they can work onsite.

Home deductions because the employment arrangement is to work from home are also included here and cover expenses for internet, energy, and computer peripherals, to name a few.

●       Personal Deductions

Charitable contributions are an example of personal deductions where contributions amounting to a minimum of AUD 2 made to specifically-identified organizations in the tax law or are Commissioner of Taxation endorsed are considered deductible gift recipients.

Superannuation contributions are another standard deductible, but in the long run, they are something you can enjoy because this is basically your contribution to your super fund to be used during your retirement.

●        Medicare Levy

The Medicare levy amounts to 2% of your taxable income, one of the primary funding sources for Medicare, Australia’s renowned public healthcare system.

Final Thoughts

Knowing and responsibly meeting your tax obligations as an expat in Australia should be a given. As an expat, you have to abide by the country’s rules and laws. One of the best ways to show gratitude for the country you now call home is to allow your tax contributions to help the government with its civic operations continuously.

And the good news is that, as an expat, you are entitled to claim a tax offset.