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How does Australia's income tax compare around the world?

·5-min read
Male person holding some Australian currency to represent getting a tax return. This visual concept evokes ideas around saving money, paying for expenses and investments.
How does the Aussie tax system stack up against other countries? (Source; Getty)

The end of the financial year is almost here and soon many Australians will be looking at what they've earned and just how much tax they have paid. But have you ever wondered how our tax system compares to other counties?

While Australians pay more tax than many in other countries, the overall tax burden is relatively low compared with other developed countries.

While no one loves to pay tax, it's necessary to fund major public services such as the military, infrastructure, police and fire departments, public education and more.

How Aussies are taxed

The Australian income tax regime is progressive compared with other countries and has relatively low average and marginal tax rates at low-income levels, but relatively high marginal tax rates at high-income levels, according to the Treasury.

What does that mean? It means that the more you earn, the more tax you will pay.

The top tax rate — paid by people earning more than $180,000 a year — is 45 per cent, plus a 2 per cent Medicare Levy and 2 per cent temporary deficit levy that ends in July of every year.

If you're a non-resident, you only need to file a tax return if you have income that has been earned in Australia, such as wages, business income or capital gains on Australian land and buildings.

Non-residents generally do not pay the Medicare levy (and, therefore, cannot claim Medicare benefits), and will have 10 per cent of any interest earned from Australian bank accounts withheld for tax.

Income tax is withheld from wages and salaries in Australia, often resulting in refunds payable to taxpayers.

How do other countries compare?

Tax rate comparisons by country can be tricky to do in detail but here's a rough guide to how you would be taxed in any one of the following five countries, which are all popular destinations for Australians to live and work.

United Kingdom

The United Kingdom charges 45 per cent on people earning £150,000 ($264,090) and above.

Both Australia and the UK apply progressive rates of tax, ranging from 0 per cent to 45 per cent.

While Australia has a standard initial tax-free threshold ($18,200 of income) for all taxpayers, the UK uses a system of allowances that taxpayers deduct from their income before tax is assessed.

Non-residents only pay tax on their UK income and not on their foreign income.

United States

In the US, federal income tax is charged at tiered individual rates between 10 per cent and 37 per cent. Unlike Australia, there is no initial tax-free threshold.

Most states also impose a personal income tax, which differs between states. Typically state tax rates are under 10 per cent.

The US generally only taxes non-residents on income that is sourced in the US.

Unlike Australia, it does not provide universal health care for its citizens.

Each individual is responsible for funding their own health care, which means that instead of the medicare taxes going towards a general public funding pool for universal health care, they go towards your Medicare Hospital Insurance for when you are a senior.

Medicaid is available to help support low-income earners.

New Zealand

New Zealand has progressive or gradual tax rates. The rates increase as your income increases.

Residents are taxed on their worldwide income, and non-residents are taxed on NZ-sourced income.

The top personal tax rate is 39 per cent for income over NZ$180,000. The lowest personal tax rate is 10.5 per cent for income up to NZ$14,000.

NZ doesn't apply a social security tax and general healthcare tax.

If you are a new migrant, you may not have to pay tax on most of your overseas income for the first four years living in New Zealand. You only have to pay income tax on what you earn within the country.

China

The personal income tax rate in China has remained at 45 per cent since 2019.

Residents are generally subject to China's individual income tax (IIT) on their worldwide income. Non-residents are generally taxed in China on their China-sourced income only.

According to PWC's Worldwide Tax Summaries, an individual is taxed in China by category.

China's IIT law groups personal income into nine categories: employment income (i.e. wages and salaries), remuneration for labour services, author's remuneration, royalties, business income, interest, dividends and profit distribution, rental income, income from transfer of property, and incidental income.

Each income category has its own tax rates and allowable deductions.

Germany

Germany also has a progressive taxation system.

The minimum taxable income in Germany is €9,169 ($13,730). The tax rate starts at 14 per cent, rising in a series of income tax brackets to 45 per cent for the highest earners making over €265,327 ($397,331).

There are six tax classes in Germany (called steuerklassen), and each class dictates what tax rate is applied, according to Expatrio.

Non-resident individuals are taxed (usually by withholding) on German-sourced income only.

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