What is Tax at Source for Foreigners in Australia

KSH TAX
January 25, 2025
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Tax at source is not only deducted from Australian residents but also deducted amongst foreigners who earn from Australian income sources.

But did you know that taxes withheld from non-residents vary from Australian residents? This is due to factors such as tax rates and the nature of their income.

Let’s dive deeper into our blog post to understand better and answer some questions to get more insights:

Tax Withheld at Source for Foreigners in Australia

Non-residents who earn their income in Australia will constantly be subjected to paying their taxes to the ATO.

The employer is responsible for withholding a certain amount of money and remitting it to the government before paying the employee their net salary.

Some of the taxes that non-residents might be subjected to include dividend income, royalties, interest income, and more.

The WHT rates could vary depending on the type of income a non-resident receives and also on factors like whether they are from a country with a tax treaty with Australia or not.

Knowing whether your country is in a treaty with the Australian government is always essential, as this would lead to a lower WHT rate from your side.

Who pays tax at source as a foreigner?

The Pay As You Go (PAYG) system specifically requires employers and financial institutions, among other payers, to withhold taxes on foreigners’ payments.

Here are some of the examples of individuals who may have their tax withheld at the source;

1. Foreign employees working in Australia

Your employer must withhold tax at the applicable rate and submit it to the government, whether you are working temporarily or permanently.

2. Foreign contractors

If you are a foreign contractor, your tax may be withheld by your company or clients.

3. Foreign investors

Foreigners who earn income from Australian investments, including interest and dividends, will always have their tax withheld at source.

Tax rates for non-residents

Non-residents’ tax rates are not the same as residents’. This is because foreigners pay much higher taxes at the source but don’t benefit from tax offsets and exemptions available to residents.

FAQs

Do foreigners pay taxes?

According to ATO, as a foreigner working in Australia, you need to pay taxes, and that is if you are earning your salary from an Australian source.

This is to ensure that you have met the required tax obligation of you by the government.

However, foreigners/non-residents are exempted from paying taxes acquired from outside Australia.

How much tax do foreigners pay in Australia?

Foreigners (non-residents) in Australia pay tax on income earned from Australian sources, but their tax rates may differ entirely from those of residents.

Is Australia tax-free for foreigners?

Australia is not tax-free for foreigners because those who earn from Australian sources are very much eligible to pay their taxes to the government.

Is foreign source income taxable in Australia?

For Australian residents, income earned from any source, regardless of where it originates, is generally taxable by the Australian government.

This means that even if you earn income outside of Australia, you may still be required to file for taxes in Australia.

As for foreigners, they are not taxed by the ATO on income earned outside of Australia.

Is tax collected at source refundable for foreigners?

Foreign residents may have more limited options for tax refunds than Australian residents. This is because the tax rules and available deductions can differ for non-residents.

In cases where the government withholds a lot of taxes, upon filing their returns at the end of the financial year, they may request for and receive a refund.

Non-residents are not eligible for the low-income tax offset and, hence, cannot claim the tax-free threshold like Australian residents.