Australia (2017-18 Income tax year)
This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.
Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the public sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.
The national currency is the Australian dollar (AUD). For the 2017-2018 income tax year AUD 1.34 was equal to USD 1. The average worker earned AUD 85 778 in 2017-2018.
1. Personal income tax system
1.1. Federal income tax
1.1.1. Tax unit
Members of the family are taxed separately.
1.1.2. Tax allowances and credits
1.1.2.1. Standard tax reliefs
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Basic reliefs: Income earned up to AUD 18 200 by resident taxpayers is subject to tax at a zero rate.
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Standard marital status reliefs: No relief available.
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Relief(s) for children: See Section 4.2 for more detail on transfers related to dependent children.
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Relief for social security contributions and other taxes: No such contributions are levied.
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Reliefs for low-income earners: A tax offset worth a maximum of AUD 445 is available for low-income earners called the Low Income Tax Offset. Taxpayers whose taxable income was less than AUD 37 000 in 2017-2018 are eligible to receive the full amount of the offset. The offset is reduced by AUD 0.015 for every AUD 1 by which a taxpayer’s taxable income exceeds AUD 37 000 and is no longer available once a taxpayer’s taxable income exceeds AUD 66 667.
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Relief for mature age workers: No relief available.
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Relief for recipients of certain social security benefits: The Beneficiary Tax Offset is available for those who receive certain taxable social security benefits called ‘rebatable benefits’. It ensures that a person who receives a rebatable benefit does not pay any tax on that income. The amount of the Beneficiary Tax Offset available to an individual is determined by the total amount of the rebatable benefit(s) they receive in an income year.
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Relief for taxpayers who maintain a dependant who is genuinely unable to work: A taxpayer who maintains a dependant who is genuinely unable to work due to invalidity or carer obligations may be eligible for the Dependent (Invalid and Carer) Tax Offset. This tax offset is worth a maximum of AUD 2 666 in 2017-2018. To qualify for the offset, the combined adjusted taxable income of the taxpayer and their spouse (where one exists) should not exceed AUD 100 000 in 2017-2018. The amount of offset that may be received is reduced by AUD 1 for every AUD 4 by which the dependant's adjusted taxable income exceeds AUD 282 and is no longer available once the dependant’s adjusted taxable income exceeds AUD 10 946.
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There are also tax rebates for taxpayers in receipt of a taxable Australian Government pension, as well as Australians who are of Age Pension age and who meet all of the Age Pension eligibility criteria except the income and/or asset tests. The Seniors and Pensioners Tax Offset is worth up to AUD 2 230 for a single taxpayer, up to AUD 1 602 for each member of a senior couple not separated by illness and AUD 2 040 for each member of a senior couple separated by illness. The offset is withdrawn at the rate of AUD 0.125 for every AUD 1 that a recipient’s income exceeds their effective tax-free threshold. For a single taxpayer, this means that the offset is withdrawn from AUD 32 279 and is no longer available once income reaches AUD 50 119. For members of a couple not separated by illness, the offset is withdrawn from a combined income of AUD 57948 and is no longer available once combined income reaches AUD 83 580.
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Other: No other standard relief available.
1.1.2.2. Main non-standard tax reliefs applicable to an average worker include:
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Relief for superannuation: Contributions to a low-income spouse’s superannuation attract an 18% rebate up to a maximum rebate of AUD 540. In 2017-2018, the Low Income Superannuation Tax Offset matches AUD 0.15 for each AUD 1 of concessional contributions from at least AUD 10 up to AUD 500 a year for eligible individuals with annual incomes up to AUD 37 000. In addition in 2017-18, eligible individuals with incomes not exceeding AUD 51 813 can make non-concessional contributions and receive a co-contribution of 50%, up to a maximum of AUD 500.
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Relief for private health insurance: For the 2017-2018 income year, there are different rebate amounts depending on age and income. For individuals below 65 years without dependants and with annual income for surcharge purposes below AUD 90 000 the rebate is 25.934% from 1 July 2017 to 31 March 2018 and 25.415% until 30 June 2018 of the cost of cover for eligible private health care. For families (couples and individuals with at least one dependent child) below 65 years with annual income for surcharge purposes below AUD 180 000, the rebate is 25.934% from 1 July 2017 to 31 March 2018 and 25.415% until 30 June 2018 of the cost of cover for eligible private health care. The threshold is increased by AUD 1 500 for each dependent child after the first.
The rebate percentages are reduced for individuals and families with annual incomes above these amounts. The rebate percentages are also higher for individuals and families aged 65 years or more.
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Relief for medical expenses: In 2017-2018, there is an offset for annual net out-of-pocket medical expenses. Eligibility for the offset is based on annual income. This offset is being phased out, so for the 2017-2018 income year, it is only available to individuals who have medical expenses relating to disability aids, attendant care or aged care. Single taxpayers with an adjusted taxable income (ATI) of AUD 90 000 or less, and families with ATI below AUD 180 000 (plus AUD 1 500 for each additional dependent child after the first), are able to claim 20% of medical expenses over AUD 2 333. Single taxpayers and families with incomes above these respective amounts are able to claim 10% of medical expenses over AUD 5 503.
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Other non-standard reliefs provided as deductions are:
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subscriptions paid in respect of membership of a trade, business or professional association or union;
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charitable contributions of AUD 2 or more to specified funds, authorities and institutions, including public benevolent institutions, approved research institutes for scientific research, building funds for schools conducted by non-profit organisations etc.; and
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work-related expenses including cost of replacement of tools of trade, cost of provision and of cleaning protective clothing and footwear, travelling between jobs or travelling in the course of employment.
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1.1.3. Tax schedule
General rates of tax - resident individuals
To nominally contribute towards the cost of basic medical and hospital care a Medicare Levy is imposed on the taxable incomes of resident taxpayers. In 2017-2018, the levy applied at the rate of 2.0% of the taxable income of an individual.
Certain thresholds are applied before the levy is imposed. In 2017-2018, an individual taxpayer was not liable for the levy where their taxable income did not exceed AUD 21 980. A taxpayer in a couple or sole parent family who is not receiving Parenting Payment, (see section 4.2), does not pay the levy if the taxable family income does not exceed AUD 37 089. The threshold is increased by AUD 3 406 for each dependent child. Where an individual’s taxable income exceeds AUD 21 980, or a family’s income exceeds AUD 37 089 (plus AUD 3 406 for each dependent child), the levy shades in at a rate of 10% of the excess of taxable income over the threshold, until the levy is equal to 2.0% of the individual’s or family’s taxable income.
For 2017-2018, individual senior Australians of Age Pension age were not liable to pay the levy where their taxable income did not exceed AUD 34 758. Where taxable income exceeded AUD 34 758 but did not exceed AUD 43 447, the levy liability was equal to 10% of the excess of taxable income over AUD 34 758. Pensioner families (including couples and sole parents on Parenting Payment) and senior Australian families of Age Pension age, did not become liable to pay any Medicare levy until their combined income in 2017-2018 exceeded AUD 48 385 (plus AUD 3 406 for each dependent child).
Individual taxpayers who had income for surcharge purposes greater than AUD 90 000 in 2017-2018 (or if a couple had a combined income greater than AUD 180 000) but who did not have a complying private health insurance policy, were liable for the Medicare levy surcharge, which is applied as a flat rate on their taxable income. The surcharge rates are 1%, 1.25% and 1.5% depending on the taxpayer’s taxable income above these thresholds. However, affected taxpayers typically purchase a complying policy, as the cost of such a policy is generally less than the surcharge. The surcharge is therefore not included in this publication.
1.2. State and local income taxes
In Australia, no states or territories levy a tax based on a resident’s income.
2. Social security contributions
2.1. Employees’ contributions
None. There is, however, a Medicare Levy which is based upon taxable income. See Section 1.1.3.
2.2. Employers’ contributions
No contributions are collected from employers or employees specifically for pensions, sickness, unemployment or work injury benefits, family allowances or other benefits.
Part of Australia’s retirement income system is the provision of compulsory employer contributions (the Superannuation Guarantee system). In 2017-2018 the Superannuation Guarantee required employers to pay 9.5% on top of employees’ gross ordinary time earnings to an approved superannuation fund, provided they earn more than AUD 450 per month (they may also choose to make contributions for workers earning less than this threshold). This threshold is not indexed. There is also a limit to the Superannuation Guarantee. In each quarter, any earnings beyond a threshold are not covered by the Superannuation Guarantee. This threshold is indexed to a measure of average earnings. In the 2017-2018 tax year this threshold was AUD 52 760 per quarter. The Superannuation Guarantee rate will remain at 9.5% until 2020 21, then increase by 0.5 percentage points each year until it reaches 12% in 2025-26.
These contributions are not reflected in the ‘Taxing Wages’ calculations because they are not a form of taxation (they are not an unrequited transfer to general government). While employers are legislatively required to make contributions to approved superannuation funds legislated, superannuation funds are private, although subject to regulation. Employers’ contributions are generally made to individual accounts and form part of employees’ personal superannuation assets. Some defined benefit schemes for public sector employees and private defined benefit schemes also exist. The employee may take superannuation benefits as either a lump sum payment or pension on retirement. Accordingly, superannuation contributions are reflected in the Non-Tax Compulsory Payment calculations.
3. Other taxes
3.1. Pay-roll tax
Australian State Governments levy pay-roll taxes on wages, cash or in kind, provided by larger employers to their employees. The rates of pay-roll tax, thresholds and deductions differ between States. In New South Wales, the State with the largest population, the pay-roll tax rate in 2017-18 was 5.45% for employers with total Australian wages in excess of AUD 750 000. Employers are entitled to an exemption from tax, or a pro-rated pay-roll tax threshold, on wages paid in New South Wales up to a maximum of AUD 750 000. The exempt amount is reduced based on the proportion of the employer’s New South Wales pay roll to its total Australian pay roll.
4. Universal cash transfers
4.1. Transfers related to marital status
There are no cash transfers made on a universal basis to married couples.
4.2. Transfers related to dependent children
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Family Tax Benefit (FTB) Part A is paid to a parent, guardian or an approved care organisation to help families meet the costs of raising children. For 2017-2018, the base rate of FTB(A) is payable where the combined ‘adjusted’ taxable income of parents does not exceed AUD 94 316. The payment shades out at the rate of AUD 0.30 per AUD 1 of income over the ceiling. The base rate of payment is AUD 1 529.35 for a dependent child aged under 15 and for dependent full time students aged 16 to 19. A higher FTB(A) benefit is available for lower income earners, and the value of this benefit is dependent on the age and number of children. For 2017-2018 families may receive a maximum payment of AUD 4 766.90 for each child aged under 13 years and AUD 6 201.35 for each child aged 13 to 15 years and for each child aged 16–19 in full time secondary school. For 2017-18 an end of year supplement of AUD 737.30 per child is available for families with a combined taxable income of less than AUD 80 000. For 2017-2018, the higher benefit tapers out at the rate of AUD 0.20 for each dollar of income over AUD 52 706 until the base payment is reached. However, people receiving any social security allowances or pensions automatically qualify for the maximum higher benefit. The attached calculations assume each dependant is between 5 and 12 years of age.
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Family Tax Benefit Part B (FTB(B)) is targeted at single income couple and sole parent families. Eligibility for FTB(B) is contingent upon having a FTB child under the age of 16 or a qualifying dependent full-time student up to of the end of the calendar year they turn 18. There are two separate income tests applied to the parent(s). The parent earning the higher amount (or the sole parent, in the case of single parent families) must earn AUD 100 000 or less for the financial year for the family to be eligible. A secondary earner income threshold is also applied to the parent earning the lower amount. For 2017-2018, this threshold is AUD 5 548, above which the entitlement is reduced by AUD 0.20 for each dollar of income. There is no secondary earner income test applied to sole parents. For 2017-2018, the maximum payment is AUD 3 190.10 if the youngest dependent child is aged between 5 and 15 (or up to the end of the calendar year they turn 18 years if the dependent child is a full-time student), and AUD 4 412.85 if there is a child under 5 years. The attached calculations assume each dependant is between 5 and 12 years of age.
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Recipients of the Family Tax Benefit may elect to receive the benefit in fortnightly instalments or as an end of year lump sum payment.
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A Newborn Supplement and Newborn Upfront Payment may be paid to families for each baby born from 1 March 2014. To be eligible families will need to be eligible for Family Tax Benefit Part A and not be accessing Parental Leave Pay for that child. For multiple births, Parental Leave Pay may be payable for one child and Newborn Supplement for the other child or children. The total value of the Newborn Supplement and Newborn Upfront Payment in 2017-2018 is up to AUD 2 158.89 for the first child (and all multiple births) and up to AUD 1 080.54 for subsequent children. This supplement and upfront payment replace the previous Baby Bonus.
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On 1 January 2011, Australia’s first Paid Parental Leave scheme commenced. The scheme provides two government-funded payments: Parental Leave Pay and Dad and Partner Pay. Parental Leave Pay (PLP) provides the primary carer of a child with 18 weeks’ pay at the national minimum wage (AUD 695 per week before tax in 2017-2018), in the year following the child’s birth or adoption. The primary carer must have worked for at least 10 of the 13 months prior to the birth or adoption and for at least 330 hours in that 10-month period with no more than an eight-week gap between two working days. The primary carer’s adjusted taxable income must be AUD 150 000 or less in the financial year prior to the date of claim or date of birth or adoption, whichever is earlier. PLP and Newborn Supplement cannot be paid for the same child. A person cannot claim FTB(B) or the dependent spouse, child housekeeper and housekeeper tax offsets while they are receiving PLP.
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Dad and Partner Pay (DAPP) provides the father or partner of the primary carer of a child with two weeks’ pay at the national minimum wage (AUD 695 per week before tax in 2017-18), in the year following the child’s birth or adoption. The father or partner must have worked for at least 10 of the 13 months prior to the birth or adoption and for at least 330 hours in that 10-month period with no more than an eight-week gap between two working days. The father or partner’s adjusted taxable income must be AUD 150 000 or less in the financial year prior to the date of claim or date of birth or adoption, whichever is earlier. DAPP and PLP may be paid for the same child.
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Child Care Benefit (CCB) is a means-tested payment that assists families with the cost of approved childcare. In 2017-18 CCB is payable to eligible families with incomes up to AUD 156 914 for one child in care, with the income limit rising for each additional child in care. Families with annual incomes under AUD 45 114receive the maximum rate of CCB, which is AUD 4.30 per hour for a non-school child in care. CCB is payable for a maximum of 50 hours per week. To receive more than 24 hours of CCB per week both parents must be participating in work, training or study activities for at least 15 hours per week. The attached calculations assume no childcare usage.
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Child Care Rebate (CCR) is an additional payment aimed at promoting workforce participation. CCR is not means tested. It pays 50% of out-of-pocket childcare expenses (after any CCB), up to an annual cap of AUD 7 613 per child in 2017-18. Families have to participate in work; training or study related commitments at some time during a week or have an exemption. No minimum number of hours is required.
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Parenting Payment is a taxable payment payable to partnered and sole parents for low income families with a qualifying child under six and eight years of age respectively. In 2017-2018 the maximum annual amount of Parenting Payment (Partnered) (PP(P)) was AUD 12 812.80. Only one parent in a couple can be entitled to PP(P). The maximum annual amount of Parenting Payment (Single) (PP(S)) was AUD 19 623.5. These payments are subject to income and assets tests. The Parenting Payment (Partnered) tapers out at a rate of AUD 0.50 per AUD 1 of income over AUD 2 704 up to AUD 6 604 and reduces at a rate of AUD 0.60 per AUD 1 for income over AUD 6 604. Under the PP(P) income test, a spouse receives a reduced Parenting Payment, tapering at a rate of AUD 0.60, when the higher earning partner’s income exceeds AUD 25 674. If the spouse has little or no income (less than AUD 2 704 per annum), he or she would not receive any Parenting Payment when the higher earning partner’s income exceeds AUD 45 296. PP(S) reduces by AUD 0.40 for each AUD 1 of income above AUD 4 903.60 plus AUD 639.60 for each child other than the first. The attached calculations assume dependants are aged six and seven.
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The Newstart allowance is a taxable payment payable to single persons and partnered individuals who are unemployed. It is also payable to a member of a couple if their youngest child is aged six years or more and to single parents if their youngest child is aged eight years or more. It is conditional on recipients fulfilling a personal Job Plan, which typically involves taking part in activities such as job seeking and training. In 2017-2018 the Newstart allowance for singles without dependants was AUD 14 048.84 and for partnered individuals was AUD 12 684.88. These payments taper out at a rate of AUD 0.50 per AUD 1 for incomes between AUD 2 704 and AUD 6 604, and reduce at a rate of AUD 0.60 per AUD for incomes over AUD 6 604. The Newstart allowance for partnered individuals reduces by AUD 0.60 for each AUD 1 of their partner’s income above AUD 24 856 (taking into account the Energy Supplement). For single principal carers with dependent child(ren), it reduces at a rate of AUD 0.40 per AUD 1 for incomes over AUD 2 704.
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A non-taxable supplementary payment called Pharmaceutical Allowance (PA) is payable to eligible persons; for example, persons who receive the PP(S). PA is added to the maximum basic rate of PP(S) before a person’s PP(S) entitlement is calculated. Anyone with a PP(S) entitlement, after PA has been added, receives the full amount of PA. For 2017-2018, the payment is AUD 161.20.
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A Telephone Allowance is available on a quarterly basis to eligible individuals, including individuals who receive PP(S) or PA if their PP(S) entitlement is reduced to 0. The basic rate of the Telephone Allowance is AUD 114.74 for 2017-2018, with a higher rate of AUD 170.58 available for recipients of Disability Support Pension who are under the age of 21 and where a home internet service is connected in the individual’s or partner’s name. The attached calculations assume the standard rate is applicable.
4.3. Other transfers
Single Income Family Supplement
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The Single Income Family Supplement (SIFS) is a non-taxable payment for households with one main income earner. This payment has been phased out, with grandfathering commenced 1 July 2017.
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The SIFS phases in at a rate of AUD 0.025 for every AUD 1 above AUD 68 000 until it reaches AUD 300. Once the main earner’s income exceeds AUD 120 000 the SIFS reduces by AUD 0.01 for every AUD 1. If there is a secondary earner, every AUD of their income above AUD 16 000, reduces the SIFS by AUD 0.15.
Income Support Bonus
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The Income Support Bonus ceased as of 31 December 2016.
Energy assistance payment
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Recipients of eligible pensions (Age Pension, Parenting Payment Single and Disability Support Pension) received a one off payment of AUD 75 for singles and AUD 62.50 for couples (each). The one-off energy assistance payment is no longer available to new recipients.
5. Recent changes in the tax/benefit system
In 2017-18, the following changes to the benefits system commenced:
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Payment of the Single Income Family Supplement ceased for new claimants from 1 July 2017.
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Cease payment of FTB Energy Supplement amounts for new claimants from 20 September 2016 on 20 March 2017.
6. Memorandum items
6.1. Identification of an average worker
The source of the information used in replying to the questionnaire was the Australian Bureau of Statistics publication Average Weekly Earnings — Australia, catalogue number 6302.0. The survey is now conducted on a biannual basis (it was previously conducted on a quarterly basis up to the June 2012 quarter) and is based on a representative sample of employers in each industry. As a result of this change in frequency, average weekly earnings for the 2017-2018 income tax year have been calculated as the average of the two biannual figures (November 2017 and May 2018 (released in August 2018)).
In August 2009, the Australian Bureau of Statistics (ABS) redesigned the survey and replaced the industry classification based on the 1993 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC), which had been in use since 1994, with the 2006 edition of ANZSIC. The 2006 edition of ANZSIC was developed to provide a more contemporary industrial classification system, taking into account issues such as changes in the structure and composition of the economy, changing user demands and compatibility with major international classification standards. Accordingly, the average wage figure for 2010 and later years is inconsistent with that provided for previous years.
All wage and salary earners who received pay for the reference period are represented in the Survey of Average Weekly Earnings (AWE), except:
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members of the Australian permanent defence forces;
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employees of enterprises primarily engaged in agriculture, forestry and fishing;
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employees of private households;
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employees of overseas embassies, consulates, etc.;
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employees based outside Australia; and
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employees on workers’ compensation who are not paid through the payroll.
Also excluded are the following persons who are not regarded as employees for the purposes of this survey:
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casual employees who did not receive pay during the reference period;
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employees on leave without pay who did not receive pay during the reference period;
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employees on strike, or stood down, who did not receive pay during the reference period;
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directors who are not paid a salary;
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proprietors/partners of unincorporated businesses;
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self-employed persons such as subcontractors, owner/drivers, consultants;
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persons paid solely by commission without a retainer; and
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employees paid under the Parental Leave Pay Scheme.
The sample for the AWE survey, like most ABS business surveys, is selected from the ABS Business Register which is primarily based on registrations with the Australian Taxation Office's (ATO) Pay As You Go Withholding (PAYGW) scheme (and prior to 1 June 2000 the Group Employer (GE) scheme). The population is updated quarterly to take account of:
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new businesses;
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businesses which have ceased employing;
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changes in employment levels;
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changes in industry; and
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other general business changes.
Earnings comprise weekly ordinary time earnings and weekly overtime earnings.
Weekly ordinary time earnings refers to one week’s earnings of employees for the reference period attributable to award, standard or agreed hours of work. It is calculated before taxation and any other deductions (e.g. board and lodging) have been made. Included in ordinary time earnings are award, workplace and enterprise bargaining payments, and other agreed base rates of pay, over award and over agreed payments, penalty payments, shift and other allowances; commissions and retainers; bonuses and similar payments related to the reference period; payments under incentive or piecework; payments under profit sharing schemes normally paid each pay period; payment for leave taken during the reference period; all workers’ compensation payments made through the payroll; and salary payments made to directors. Excluded are overtime payments, retrospective pay, pay in advance, leave loadings, severance, termination and redundancy payments, and other payments not related to the reference period.
Weekly overtime earnings refers to payment for hours in excess of award, standard or agreed hours of work.
6.2. Employers’ contribution to private health and pension scheme
In Australia, very few employers make any contributions towards health schemes for their employees, especially where the employee is at a wage level comparable to that of an average production worker.
In 2014-15, around 95 per cent of the employers’ estimated superannuation guarantee obligations were paid to employees.
2018 Tax Equations
The equations for the Australian system in 2018 are mostly repeated for each individual of a married couple. However, the spouse credit is relevant only to the calculation for the principal earner and the calculation of the Medicare levy uses shading-in rules, which depend on the levels of earnings of the spouses. The basis of calculation is shown by the Range indicator in the table below.
The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. In addition, the affixes “_princ” and “_spouse” indicate the value for the principal and spouse respectively. Where the calculation for one earner takes into account variables for the other earner, the affix "_oth" is used. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.