Employee income, like salaries, wages, and bonuses, is part of a person’s assessable income. Australian residents must pay taxes on income earned overseas, but some exemptions apply. Tax treaties with other countries can also affect how income is taxed.

Australians working abroad for at least 91 days can be exempt from income tax if their work is related to specific activities, such as overseas aid or military service, and if the income is not tax-exempt in the foreign country.
Foreign workers in Australia must pay taxes on income earned while working in the country, regardless of where the money is paid or if it is sent to Australia.

Non-cash benefits are also taxable for non-employee residents. Employers providing non-cash benefits to employees must pay a fringe benefits tax (FBT) at a rate of 47%. This tax is generally deductible for employers, and it doesn’t count towards an employee’s taxable income. However, it can impact things like healthcare surcharges, child support, and certain tax offsets.

Employee share schemes (ESS) have special tax rules. Taxes apply to the discounted value of shares and options issued to employees through ESS. Some exemptions and deferrals are available under specific conditions. Start-up companies can offer additional concessions, like income tax exemptions and deferrals on certain shares and rights.

For many companies, ESS disclosure and licensing requirements have been simplified. Australian residents must pay taxes on all discounts received through ESS, regardless of where the employment is located. Foreign residents are only taxed on discounts related to employment in Australia.

Employers must report ESS information annually, and withholding tax (WHT) applies if an employee doesn’t provide a tax file number by the end of the income year when any applicable discount is subject to Australian tax.

Income earned by an individual through a trade, business, profession, or vocation is taxable. Individuals can deduct expenses related to earning that income or running a business, as long as the expenses are not personal, capital, or domestic in nature.

To claim deductions for specific motor vehicle or travel expenses, individuals must meet the record-keeping requirements outlined in the substantiation provisions.

The dividend imputation system in Australia aims to prevent double taxation of corporate profits distributed to shareholders. When resident corporations pay dividends from their taxed profits (franked dividends), resident individual shareholders can claim a “franking offset” for the corporate tax paid on those profits. If the offset is more than the individual’s tax liability, they’ll receive a refund for the difference.

Some payments, loans, and forgiven debts by private companies to shareholders (or associates) may be considered taxable dividends if the company has enough profits. This also applies when a shareholder (or associate) is allowed to use a private company’s asset, like real estate, a car, or boat, for free or at a reduced cost.

Resident individuals pay tax on foreign-source dividend income but can claim a tax offset for foreign taxes paid on that income.
Non-resident individuals generally don’t receive a franking offset for franked dividends, but they are exempt from withholding tax (WHT) on those dividends. They’re also exempt from WHT on unfranked dividends if the dividends come from specific foreign-source income and gains, and the company declares it as conduit foreign income (CFI).

Unfranked dividends paid to non-residents are subject to a 30% WHT (often reduced to 15% with a tax treaty). The payer typically withholds this tax on the gross amount of the dividend and sends it to the Australian revenue authorities.

Resident individuals are subject to Australian tax on the rental income derived from both Australian and foreign property. Non-resident individuals are subject to Australian tax on rental income derived from an Australian source. Gross rental receipts are included as assessable income in the individual’s tax return. A deduction for expenses incurred in deriving such income will be allowed. Where the deductions exceed the rental income, the resultant loss may be offset against the individual’s other income.

A deduction is not allowed for travel costs in connection with a residential investment property, including costs incurred to inspect and maintain the property, collect rent, or visit the real estate agent, even if that is the sole purpose of the travel. In addition, for any residential rental property acquired under contracts entered into after 7:30 pm AEST on 9 May 2017, depreciation deductions for items of plant and equipment (e.g. dishwashers, ceiling fans, carpet, and hot water systems) in residential investment properties are limited to those assets that have not previously been used.

Tax deductions are denied for expenses related to the holding of certain vacant land that is not used in carrying on a business for the purpose of producing assessable income. Vacant land does not include land on which there is a substantial and permanent structure or residential premises that is being constructed, or substantially renovated, but only where it is lawfully able to be occupied and is leased, hired, or licensed. There are exceptions to ensure that a land owner is not denied deductions when structures on the land are affected by natural disasters or exceptional circumstances, or when the land is owned by a primary producer or is subject to an arm’s-length lease arrangement to an entity who carries on a business on the land.

Australian residents have to pay taxes on interest income from both local and international sources. If you don’t provide your tax file number to financial institutions or certain investment bodies in the way required by the tax commissioner, a withholding tax (WHT) will be applied to your domestic interest payments.

For foreign-sourced interest income, Australian residents can generally get a tax offset for foreign taxes paid on that income (more information can be found in the foreign tax relief and tax treaties section).

For non-residents, a WHT is charged on interest paid by an Australian resident or by a non-resident running a permanent establishment (PE) in Australia. However, if the non-resident earns the interest through a PE in Australia, WHT is not charged, and the interest is taxed at standard income tax rates.

The WHT rate is typically 10% of the gross interest paid, but this rate can be reduced in some cases if certain tax treaties apply. The payer usually withholds the tax on behalf of the payee and sends it to the revenue authorities. The WHT is the final tax on the interest income in Australia.

Capital gains tax (CGT) applies to assets bought on or after September 20, 1985. When you sell these assets, the profit made is considered taxable income and is taxed at regular rates. Capital losses can only be offset against capital gains, not other types of income.

If you’ve held an asset for at least 12 months, you may be eligible for a discount on your capital gains tax. For assets acquired after September 21, 1999, you’ll only pay tax on 50% of the gain. If the asset is qualifying affordable housing, the discount is 60%. Non-residents don’t receive this discount on gains made after May 8, 2012.

For assets bought before September 21, 1999, you can choose between two methods to calculate your taxable capital gain: the discount method or the indexation method, which adjusts the gain based on inflation up to September 30, 1999.

Australian residents, excluding temporary residents, pay tax on gains from assets located anywhere, with a tax credit available for foreign tax paid. Non-residents only pay CGT on Australian-based assets or specific assets connected to Australian real estate.

Non-residents calculate their net capital gains similarly to residents, but they don’t receive the 50% discount on gains made after May 8, 2012. A non-final 12.5% withholding tax applies to non-residents’ sales of taxable Australian property, with the amount credited against their income tax liability.

If a non-resident becomes an Australian resident, their assets (excluding those bought before September 20, 1985, and taxable Australian property) are treated as if they were acquired at their market value when they became a resident. Special rules also apply when a resident becomes a non-resident.

The CGT main residence exemption doesn’t apply to foreign residents, but it may be available in cases of a “life event” related to health or family matters if the individual has been a non-resident for six years or less.