Banking, Money and Taxes in Australia

The currency in Australia is the Australian Dollar
Australia is a major regional financial hub with a sophisticated banking system, and expats will find there is plenty of professional support available when it comes to educating oneself about and understanding different aspects of financial management in the country.  
 

Money in Australia

 
The Australian Dollar (AUD or $A) is the official currency in Australia, and is divided into 100 cents. Within Australia, expats will see currency simply abbreviated as $; though, this isn’t to be confused with the US dollar.
 
  • Notes: 5, 10, 20, 50 and 100 dollar notes
  • Coins: 5, 10, 20 and 50 cent coins, and 1 and 2 dollar coins 
     
Both cash and credit/debit cards are readily accepted in most places in Australia. Furthermore, ATMs are ubiquitous; with all services in English. 
 

Banking in Australia

 
Expats wanting to open a bank account in Australia should always investigate all available options, particularly as interest rates can vary between one bank and another. Australia’s major banks are the Commonwealth Bank of Australia, ANZ Bank, Westpac and National Australia Bank.

As banks are always keen to attract new customers, most have a wide service offering, and are keen to provide assistance to expatriates. Opening a bank account in Australia is a fairly straightforward procedure requiring a certified passport copy, proof of residential address and a bank statement from the previous three months.
 

Taxes in Australia


Moving to Australia temporarily for work or to live there permanently means that at some point expats will encounter the Australian Tax Office (ATO). Australian tax is paid in the form of direct and indirect taxes, levies and GST at local, state and Federal level.
 
Australian tax is complex at best and having a tax strategy is important if an expat is planning to work, has foreign assets or is likely to be living away from their Australian residence as part of their working life in Australia. Salary packaging for foreign nationals in Australia can be a challenge, so getting the right advice is really important.

Get it right and one can enjoy the financial rewards of their work experience and keep on the right side of the Australian Tax Office

Tax File Number (TFN) 
Australia uses a progressive tax system and the amount of tax paid depends on how much an individual earns. Aside from income tax, expats may also be required to pay the Medicare Levy.
 
Obtaining a Tax File Number (TFN) ensures that tax can be taken from a person's pay at the right rate, irrespective of whether they are a temporary, permanent or non-resident for tax purposes. The employer is responsible for taking the right amount of tax from a person's pay based on their income, benefits, super and any other benefits packaged into the salary.
 

Temporary Residency

Australia welcomes a significant number of temporary residents each year, seconded here by their employers or as professionals seeking experience working in their chosen field in Australia.

Salary packaging, share options, and other employment-related taxation requirements are just some of the things expats or their employers will need to consider. They may also be eligible for the Living Away from Home Allowance (LAFHA). 

Whether coming to Australia for a working holiday, a contract or a longer-term secondment, it's recommended to consult an Australian tax consultant to find out about eligibility and benefits.
 
Living Away From Home Allowance (LAFHA)
Living Away from Home Allowance (LAFHA) is available for eligible tax payers who incur expenses or financial disadvantages by living away from their normal home in Australia and while working for their employer, for a period of no more than one year per location away from home.

Broadly speaking, some of the typical benefits include:
  • Recovery of domestic expenses such as food and rent incurred while away from home
  • Packaging other costs as part of one's salary at a tax-free rate, such as utility connection fees, education, leasing of household goods and relocation costs
  • A tax reduction to go on holiday with the family

Of course there are some eligibility requirements, such as relocating for a finite time and intending to move back to one's original place of residence, but these are easily satisfied. Since October 2012, however, the LAFHA has been severely amended. It is now only available to foreigners who own at least one home in Australia, and who can prove that they are away from their home in Australia for work.
 
Expats who had been accustomed to having their accommodation costs supplemented by this tax-free stipend of sorts are now forced to restructure their finances or renegotiate their contact with their employer. 

Furthermore, the home they are living away from must remain available for their immediate use at all times during the period they are living away, and cannot be rented out during the period that LAFHA is being received.
 
Tax on foreign investments
If an expat isn't a permanent resident of Australia, they no longer pay tax on investment income earned from foreign investments. They should just be aware that if they do become a permanent resident, that may change.
 
Superannuation
Australia has a compulsory superannuation contribution system where employers are required to make a minimum contribution of 9.25 percent of the employee's income to a super fund. This is similar to the way a pension works in most countries, and is called the Superannuation Guarantee (SG). However, senior executives or holders of a Certificate of Coverage, may be able to seek an exemption from the SG.

Temporary visa holders who have decided to go home, can request to withdraw their superannuation benefit if they are returning to their country of residence. They should be aware though, that they may be subject to a 35 percent departing tax, so it is worthwhile seeking advice from a tax specialist first.
 

Permanent residency

If an expat has decided to take up permanent residency in Australia, their taxation position changes significantly.
 
Permanent residents are subject to tax on their worldwide income, their foreign assets may become subject to capital gains tax, and they’ll be subject to anti-tax deferral rules. They’ll also be ineligible for the Living Away from Home Allowance and be subject to the Medicare Levy and surcharge.
 
They will, however, also gain access to a whole range of benefits as a permanent resident. Some of these include being able to access the Australian social security system, obtaining a Medicare card and access to the Australian free health system, and fewer restrictions on their working life and retirement.
 
Overseas property
Expats may be able to claim negative gearing on property they own overseas against their Australian income. Negative gearing occurs when their costs of holding property exceed their income from it, such as rent. First up, interest expenses incurred after 1 July 2001 for foreign property can be claimed as a debt deduction. Secondly, foreign loss rules have been repealed from 1 July 2008, which makes claiming on foreign rental property easier.

Foreign trusts and income distributions
If an expat is receiving income from an offshore trust, it may be assessable as part of their Australian tax even after they’ve become an Australian resident, and even if the profit was derived before they had arrived in the country.

Being proactive in one's tax planning may alter the outcome, so expats are advised to speak to a tax specialist if they have foreign trust assets.
 
Medicare levy exemption
Medicare is Australia’s universally funded health system, providing primary healthcare for Australian citizens and permanent residents.

Once they’ve received their permanent residency status, expats will be eligible to enrol for Medicare, the healthcare system in Australia, and will be able to access subsidised treatment from healthcare providers. 

All Australians pay a Medicare levy as part of their income tax; however, if residents also opt to take out a private medical insurance coverage scheme, they will avoid an additional Medicare levy surcharge.

If an expat has filed a permanent residency application, it’s beneficial to take out Australian registered private health insurance because they will be entitled to benefits under the Medicare system from the date of the application.

Getting the right advice
Australian tax can be complex for both temporary and permanent residents, and getting advice will smooth the process. The ideal situation is to plan before making a move to Australia; however, even if they're here already, having the right advice for their individual circumstances will help expats to plan and manage their tax obligations.

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