charlie5

On our last trip to Australia we opened a bank account in readiness, hopefully, for being issued with a visa. We subsequently moved some money to the account when the rates were quite good.

However, we now find that the bank has taken Government Withholding Tax
from our interest. We thought that this should not happen as we are still UK residents.

Has anyone else come across this problem?

Charlie

louie

As non-residents, you have 10% withholding tax deducted from the interest at source. You can set it against your UK tax liability on the interest. Interest credited whilst a non-Oz resident is not taxable income in Oz.

Once you become resident in Oz, they will deduct tax at the top rate (46.5%?) until you give the bank a Tax File Number, at which point they will stop deducting tax.

charlie5

Yes, I was expecting 10% but they have taken something like 45%.

Charlie

louie

Do they have your address as being in Australia? If it is, get it changed. If not, they've made a mistake!

hantsfamily1

When I opended my first Oz account while I was still in the UK there was a box I had to tick to say I was a non-resident therefore only 10% tax would be deducted and as the previous poster said when I got to Oz I gave them my tfn and all was ok.

sme

Yes and they refund it as soon as they get the tax file number.

charlie5

Sounds like a mistake to me from what I have heard. Thanks for your help.

Charlie

hantsfamily1

Sounds like you didnt mark the non-resident box to me.

Wol

If you are a tax resident AND have a TFN the bank should not deduct anything. It's up to you to pay the appropriate tax at year-end.

If you are non-tax-resident, the bank should deduct the W/Tax at 10% regardless of whether you have a TFN or not, and you can use that 10% to offset the UK tax on the foreign income.

If you are tax resident and DON'T have a TFN then you are stuck with the bank deducting nearly half the interest as emergency tax, and you can reclaim some at year-end. It certainly makes sense to get a TFN ASAP!

Sammy T

Along these lines, am I right in assuming that no tax is deducted from the interest paid by the bank (unlike in the UK, where the interest we were paid had already had tax deducted)

So, when we do the tax return, we have to declare the interest earned and then they will decide how much tax we have to pay. If so - bugger!

We had the proceeds for our house sale sat in the bank for 6 months so earned a good amount of interest, but I didn't realise that no tax had been deducted. We're going to have a big bill in July

How do you know what level of tax we will have to pay or is it just taken into account with your overall annual salary?

Thanks.

Sam

ozhappy981

It is taken into account with your overall salary. In simple terms:

1.They take all your income: bank interest, salary etc etc.
2. Then they take off any deductions you may be entitled to.
3. Your tax due is calculated on the balance (for tax rates see www.ato.gov.au).
4. Then your Medicare due is calculated and added to tax due.
5. Then they take off any tax you may already have paid (for example on your salary).
6. The end result is a refund or some tax due.

If you earn a lot of bank interest, the ATO may ask you next year to pay some tax part-way through the year (called PAYG instalments).

Sammy T

Thanks for that

So - the Medicare levy has not been deducted yet (through tax on salary)?
I thought that was all done for you already

So that means we'll have an extra 1% of all earnings to find as well as the tax incurred on our interest.

I obviously have a lot to learn about the Oz taz system.

Sam

ozhappy981

You slightly misunderstood my post. The total tax due and Medicare due is calculated. But then they take off what you have already paid (through deductions from salary). Some people then end up with a refund; some will have a balance to pay.

You can have a look at the ATO website for the tax rates and work out your own estimate (remember that the first $6,000 of your total income is tax-free).

Also bear in mind that if you have a joint bank account, half of the bank interest is counted as your income and the other half as your spouse's. She also has $6,000 tax free and if she isn't working may be entitled to a low-income tax offset ($1,200 for the 2009 income year).

In our case (our first year was last year), although we'd earned a fair chunk in interest, we got a tax refund.

Sammy T

OK..... Still a bit puzzled, does any of the tax taken from salary count towards the Medicare levy or is that just done at the end of the financial year via the tax return?

Have looked at the ATO website but still can't make out whether the Medicare levy has been included in the fortnightly tax deductions. How can you find that out?

Sorry to be so dumb!

Sam

hantsfamily1

Best bet is get a good accountant to do your tax return, we were lucky and were recommended a very good one on the Gold Coast and he has been great. Saved us loads with good honest advice.....Well as honest as an accountant could be