As an international student, if you’re studying in Australia for more than six months, you are regarded as an Australian resident for tax purposes, even if you don’t plan to stay forever. 

The good part here is that as a student, you’re entitled to a few Australian resident tax benefits such as our tax-free threshold, and typically lower rates than if you weren’t studying! It’s important to understand the Australian tax system and this guide will help you do exactly that. 

The basics: What is income tax?

Income tax is a compulsory payment made to the government, taken from someone’s income. Income includes all of the money you earn from different sources. For example, income from your job, business income or any investments you have made or others. The Australian Tax Office (ATO) looks at all of the income you earned for the financial year, adds it up and then takes an appropriate portion. 

How income tax works

Australia has a progressive tax system, which means the more money you earn, the higher your rate of tax. You begin with a tax-free amount, known as thetax-free threshold. This is the highest amount of income you can earn without being required to pay any tax on it. Any amount you earn up to this amount has a 0% tax rate. 

Currently in Australia, this threshold is $18,200. So, if you earn $10,000, you pay $0 tax, but if you earn $18,200, you also pay $0 tax. ​Note: Your threshold is in direct proportion to how long you’re in Australia (so if you’re only here for six months, your tax-free threshold is only $9,100).

Then, as income gets higher, you are taxed at higher tax rates, which can be found in the table below:

Source: ATO

Calculating your tax

As you just learned, the more you earn, the more you pay! The amount you pay is based on the tax bracket your earnings fall under. The maths isn’t that difficult, but the easiest way to do it is by using the tax calculator available directly from ATO: https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=STC&anchor=STC#STC/questions

What type of income needs to be declared?

Some of the more common types of assessable income include:

·       Salary and wages (whether as a full-time, part-time or casual employee);

·       Allowances and bonuses (where received during the 2015-16 income year);

·       Tips and gratuities (such as those received working in hospitality jobs);

·       Fees received as an independent contractor under a contract for service;

·       Any business income derived during the year (not being income derived from carrying on a hobby);

·       Australian government payments and allowances, including Newstart Allowance, Youth Allowance, Austudy and certain other educational and training allowances;

·       Interest income;

·       Dividend income (including the amount of any franking credit tax offset for any franking credit attached to a dividend paid by an Australian resident company);

·       Any distributions received as a beneficiary from a family trust or as a partner in a partnership; and

·       Capital gains arising from the disposal of certain CGT assets (which is a highly complex area requiring specialist advice from a registered tax agent).

Reducing your tax

There is a way to reduce the amount of tax you owe through what’s called deductions. Deductions are work-related expenses you can claim to reduce your taxable income. This, in turn, reduces the amount of tax you pay.

Unfortunately, there are limits to what you can and can’t claim as tax deductions. Specifically, tax deductions are for business-related expenses: work uniforms, laptops, a business car, etc. Check on the full deduction list available here: https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/

When do I pay tax? 

When it comes to paying your tax, there are two main scenarios: 

1.     PAYG (Pay as You Go) – If you’ve registered for PAYG, you’ll be paying tax on each payslip as your employer will take a certain amount out of your earnings and put it towards your tax.

2.     Not PAYG – If you haven’t registered for PAYG tax, you’ll have to pay all of your tax following the end of the financial year. 

What documents do I need?

To lodge your return, you will need your tax file number, payment summary (collected from your employer), bank interest statements, dividend slips, and work-related invoices and receipts.

How do I do my tax return with an ABN?

An ABN is an Australian Business Number ONLY for people who have a business, or in other words, are a sole trader or contractor. Work as a contractor could include sales roles, freelance or contract jobs. As a contractor, you’re the owner of the business. So you won’t fall into the PAYG category and will have to lodge a tax return at the end of the year for all of the income you earn on this business. 

In Australia, if you are offered work as a sole trader, you will have to register with the Australian Business Register (https://www.abr.gov.au/) to get your ABN number. 

It’s tax return time!

In Australia, the end of financial year ends on 30th June. A personal income tax needs to be completed between 1 July and 31 October immediately following the end of the financial year. 

Tax returns are pretty easy to fill out on your own and can be done via myGov (https://login.my.gov.au/). The registered tax agents or accountants can also help you work through your tax return. ​ 

It’s definitely a good idea to start your tax return as soon as you can before 31 October, to give you time to deal with any problems and get help if you need it.  

Good luck!