Understanding the Tax for Work Permit holders in Australia

Any company who is licensed to sponsor 457 visas in Australia is required to put the sponsored employee on their payroll with a set minimum salary. This is the same whether you are a permanent employee or a contractor being sponsored through an umbrella company under a labour hire agreement. As such you will be paid through the Pay As You Go (PAYG) system and be liable for local taxes and medicare levies (social security). Additionally your employer must make statutory superannuation contributions on top of your base salary. These rates and deductions are the same as local employees as seen in the Australian Income Tax table below, with the exception of LAFHA. Contractors will have additional management fees which affect their net income.

LAFHA and 457 Visa Holders

Previously work permit holders could claim Living Away From Home Allowance (LAFHA) which allowed a blanket tax break for workers who were working away from their home location. Unfortunately this has been adjusted to specifically exclude workers on 457 visas. Given that the tax burden was already quite high - especially for contractors used to more lucrative returns in Europe or Asia - this was quite damaging to the attractiveness of Australia as a destination for foreign contractors.

Tax Rates for 457 Visa Holders

Tax ranges from 0-45%. The top rate of tax (45%) is payable on any earnings over $180,000 per year. There is also a Medicare levy of 1.5%. You can also use our Australian PAYG tax calculator to estimate your net earnings. Note that superannuation is paid by your employer and is based on 9% of your gross salary (which includes base salary, commissions, bonuses and paid leave).

Taxable income

Tax on this income

0-$18,200

Nil

$18,201-$37,000

19c for each $1 over $18,200

$37,001-$80,000

$3,572 plus 32.5c for each $1 over $37,000

$80,001-$180,000

$17,547 plus 37c for each $1 over $80,000

$180,001 and over

$54,547 plus 45c for each $1 over $180,000

 

Net returns for Contractors on 457 Visas

Contractors will have their earnings dealt with slightly differently to a permanent employee. When you are sponsored through an Umbrella Company they will deduct all costs of employment from your gross earnings. This includes Superannuation and Management Fees. So your umbrella company will receive funds from the end client, deduct their management fee and superannuation contribution and then run the remainder through PAYG. You receive the net after Medicare levy and Income tax, and you also receive the superannuation contribution into the super fund of your choice. You can see some examples of net earnings below.

Day Rate  $           400.00  $           700.00  $       1,000.00  $       1,500.00
Days 220 220 220 220
Gross billing  $     88,000.00  $   154,000.00  $   220,000.00  $   330,000.00
Management Fee  $     12,000.00  $     12,320.00  $     17,600.00  $     18,000.00
Gross income  $     76,000.00  $   141,680.00  $   202,400.00  $   312,000.00
Super  $       6,275.23  $     11,698.35  $     16,711.93  $     25,000.00
Base  $     69,724.77  $   129,981.65  $   185,688.07  $   287,000.00
Income Tax  $     14,207.30  $     36,040.00  $     57,108.00 $103,147.00
Medicare Levy  $       1,045.86  $       1,949.00  $       2,786.00 $4,320.00
Total Tax  $     15,253.16  $     37,989.00 $59,894.00  $   107,467.00
Net wages  $     54,471.61  $     91,992.65  $   125,794.07  $   179,533.00
Total Remuneration  $     60,746.84  $   103,691.00  $   142,506.00  $   204,533.00
% 69% 67% 65% 62%
Management fee % 13.6% 8.0% 8.0% 5.5%

 

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