As Australia prepares to reopen its international borders, there have already been calls for migration activity to be ramped up to meet the local demand. However, a significant shortage of skilled migrants is occurring in Australia, and migrants should be aware of the tax implications associated with moving to Australia because of its robust taxation system.

How is an individual taxed in Australia?

Australia has a comprehensive and complex taxation system. The basic rule is that Australia taxes its residents on worldwide income. Whether or not you are a tax resident of Australia depends on your intentions and conduct whilst here, domicile or the length of time you spend here during a financial year. In general, most individuals who plan to migrate to Australia for employment or business pursuits will be considered tax residents of Australia if they plan to stay here on a long term basis.

The Australian income tax year starts from 1 July to 30 June next year, and tax is levied at the following for Australian residents.

Taxable income Tax on income – 2021-22 income year
0 – $18,200 Nil
$18,201 – $45,000 19% for each $1 over $18,200
$45,001 – $120,000 $5,092 plus 32.5% for each $1 over $45,000
$120,001 – $180,000 $29,467 plus 37% for each $1 over $120,000
$180,001 and over $51,667 plus 45% for each $1 over $180,000

Medicare levy is payable at 2% of your taxable income. The levy is a contribution to the Australian public healthcare system. Australian citizens and permanent residents have access to Medicare.

Migrants coming to Australia – Income tax issues

Migrating on a temporary visa

Individuals who come to Australia with a temporary visa are usually excluded from taxation of worldwide income. These individuals are classified as temporary tax residents of Australia. To attract talent from overseas, they are generally only taxable on Australian sourced income and only certain types of foreign employment income. In addition, any investment income earned overseas, such as rental income and dividends, are not subject to tax in Australia.

Individuals from certain countries coming to Australia under a temporary visa may have access to Medicare if Australia has a reciprocal health agreement with the other country the individual is from. Alternatively, individuals migrating on a temporary visa may not be required to pay the Medicare levy where Australia does not have a reciprocal health arrangement with the country they are migrating from.

Migrating on a permanent visa

If you migrate to Australia on a permanent visa, you will be taxable on worldwide income from day one.

Migrants coming to Australia - CGT issues

Capital gains tax (CGT) is not a separate tax and forms part of income tax in Australia. CGT is paid on the profit from the disposal of CGT assets such as property, shares etc. In Australia, any gains from the disposal of CGT assets will be taxed at your marginal income tax rate (refer to the table above).

Migrating on a permanent visa

Any assets owned overseas will be deemed to have been acquired at market value when you became an Australian tax resident. If you sell the asset later at a higher value, CGT will be calculated based on the increase in value (subject to certain exclusions such as the main residence exemption). However, if you hold a CGT asset for more than one year before selling it, you are entitled to the 50% CGT discount which means you only pay tax on half of the gain.

Migrating on a temporary visa

Temporary tax residents of Australia are taxed concessionally from a CGT point of view as well. They are generally only taxable on Taxable Australian Property (TAP), such as real property situated in Australia. CGT from the disposal of non-TAP assets (e.g., foreign property, foreign shares etc.) are generally not subject to tax in Australia. There is significant planning that can be done whilst a person is on a temporary visa in relation to overseas assets from an income tax and CGT point of view.

Any taxable capital gains are taxed at your marginal tax rate. Temporary tax residents do not have access to the 50% CGT discount for assets held for more than one year.

Tax planning critical
There are changes in the pipeline as well to be aware of – the Government had announced that it will be implementing new rules in determining whether a person is a tax resident of Australia. At this stage, no legislation has been passed but for a better idea of where we may be heading, refer to our article here.

If you are a business migrant intending to coming to Australia and looking for support in regard to Australian tax, our Moore Australia Asia Desk has a number of experts who are readily available and can help you identify your unique circumstance through providing you with the most appropriate advice on these matters.

This article is issued as general commentary - please contact us about your specific circumstances.