Have you heard? “The Land Down Under” is a booming hub for global businesses.
Australia’s geographical location opens the door to new trade opportunities in
the Asia-Pacific region. Plus, their open market approach with minimal trade
restrictions makes it easier to do business.
But once you’re paying workers there, you’ve got to know the ins and outs
of payroll tax in Australia.
Here’s a primer on the Aussies’ tax and benefit withholdings.
Why hire in Australia?
Australia might be in the far corner of the globe with plenty of distance
between it and major global business markets like the United States or
Europe—but that’s not holding them back.
In fact, Australia’s location has opened the door to new trade opportunities,
including free trade agreements with countries like:
- China
- Japan
- Chile
- Malaysia
- Singapore
- Thailand
- New Zealand
- Republic of Korea
In addition to free trade, Australia is well-known for its skilled workforce
and low unemployment rates. For global employers, this means a new talent pool
with lower investments in training and development.
Australia also has a strong GDP
powered by the service industry–supporting growth in emerging industries like MedTech (medical technology) and FinTech (financial technology).
Plus, the country is focused on ‘going green’ with clean energy and net-
zero carbon. Expanding your global business to Australia could be a good look for your corporate sustainability agenda and diversity.
The ins and outs of taxes when paying employees in Australia
Setting up shop in Australia is a good option for business growth, but it
comes with its own set of challenges. A new government and a new set of
cultural norms mean you’ll need to learn new rules and regulations.
Before you can hire and pay employees, here’s what you need to know about
payroll tax in Australia.
- Australia has a hybrid public-private healthcare system.
- The term ‘payroll tax’ in Australia refers to a specific social tax burden. It’s different than the collective global definition of ‘payroll tax,’ which includes a variety of withholdings and allocations for different taxes and benefits. We’ll cover both.
- Benefits like company cars for personal use or gym memberships have a special fringe benefits tax.
- Common categorical payroll taxes include the usual suspects, like individual income tax, retirement schemes, and Medicare.
Australia’s payroll tax
In Australia, there is a ‘payroll tax’ paid to the Consolidated Fund of Western Australia to cover
social welfare programs like education, healthcare, and public safety. This
tax is set at the state or territory level but paid to a federal fund. That
means the tax rates and thresholds vary between states and are dependent on
where you do business.
Employers are required to :
- Register for payroll tax online
- Estimate their payroll tax burden on a monthly cycle and make required payments
- Conduct an annual audit and reconcile payroll tax liability
- Pay penalty taxes for underreporting or other compliance failures
Mainland Australia is divided into six states and two territories, each with
its own minimum thresholds and payroll tax rates.
Chart sourced from link above
Categorical payroll taxes in Australia
In addition to Australia’s payroll tax scheme, employers are also tasked with
calculating and withholding these additional taxes:
- Federal income tax
- Superannuation
- Fringe benefits tax
- Medicare
Individual income taxes
Australia uses a familiar tiered tax structure to assess individual income
tax. Employers calculate withholdings during payroll using a ‘pay as you go’
system. Employees reconcile their taxes at the end of the year, typically
receiving a refund.
Australia’s individual income tax rates vary between 19-45%
of an
individual's income.
Superannuation
Superannuation—or just ‘super’ for short—is Australia’s social retirement
fund. Similar to old-age social security systems in other countries, a
compulsory withholding is taken for every payroll cycle during an individual's
working years. The money is earmarked to provide financial support during
retirement beginning at age 65.
Superannuation withholdings apply to all employees aged 18 or older earning $450 or more per month. Super also applies to any working individual below the age of 18 who
meets a minimum earning threshold amount and works full-time (more than 30
hours per week).
Fringe benefits tax
Fringe benefits—or ‘perks of the job’—are taxable in Australia. Definitions
can get a bit wonky here, and the fringe benefits tax can be a stumbling block
for global employers who aren’t familiar with the structure.
For one, the definition of an ‘employee’ is broad when it comes to fringe
benefits tax.
It can cover anyone receiving a fringe benefit, including current, future or
past employees, as well as directors and trust beneficiaries.
What exactly is considered a fringe benefit? Examples include:
- Driving a company car for personal use
- Employee discounts on loan terms or merchandise
- Gym memberships, event tickets and other leisure perks
- Tuition or education-related reimbursements
- Any type of salary sacrifice arrangement (e.g. employee gives up a portion of their salary in exchange for a car, shares or stocks or expense payments like a cell phone)
As of 2022, the fringe benefits tax rate
is an astounding 47%. After figuring the extra taxes, that sweet ride that comes with the job might not be the big bonus it looks like.
However, employers and employees can generally claim a portion of this tax for
a credit when they file their reconciliations.
Medicare
Australia’s public healthcare program is broken down into two taxes.
A standard 2% Medicare levy is applied to all residents at the federal level. Plus, high-earners and those without appropriate private health insurance coverage may be assessed a second surcharge tax. The surcharge rate adds an additional 1-1.5%
to the typical Medicare tax.
The bottom line on payroll taxes in Australia
Hiring in Australia can offer global businesses big benefits—and Australia’s
payroll taxes aren’t really that different from most other countries. Each has
its own version of individual income tax, healthcare provisions and retirement
schemes that are paid for through employer-sponsored payroll allocations.
The challenge country-to-country is figuring out what rates apply to which
employees—and who to pay the liabilities to. Plus, of course, staying on top
changes to local requirements.
It’s the local expertise that can be a sticking point for multinational
employers.
That’s where Payroll 360 can help.
Speak with an expert to learn more about how Safeguard Global can ensure compliance
and streamline payroll processing in over 150 countries.
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