10/12/2025 • 19 min read
Foreign Worker Tax in Australia: What to Tell Them (2025)
Foreign Worker Tax in Australia: What to Tell Them (2025)
A foreign worker in Australia should be told, upfront and in writing, that their Australian tax outcome depends on (1) whether they are an Australian tax resident, (2) whether they hold a working visa (including Working Holiday Maker status), and (3) whether they have a valid Tax File Number (TFN) and correct withholding setup—because these factors determine their pay withholding rates, Medicare levy exposure, superannuation obligations, and end-of-year return requirements under Australian law and Australian Taxation Office (ATO) guidance.
What should you tell your foreign worker about Australian tax (in plain language)?
You should tell them that Australia runs a “withholding then reconcile” system: tax is withheld from each pay, and they may need to lodge a tax return to finalise their tax position for the Australian income year (generally 1 July to 30 June).
- You must give the employer the right paperwork: A Tax file number declaration (and related onboarding forms) drives the PAYG withholding rate the employer must apply under ATO rules.
- Tax residency is not the same as visa residency: Tax residency is determined under Australian tax law (tests applied to their facts), and it affects tax rates and Medicare levy outcomes.
- Working Holiday Makers (WHMs) are often taxed differently: If they are a WHM (subclass 417 or 462 and certain related arrangements), specific ATO withholding rules can apply.
- No TFN usually means higher withholding: If they do not provide a TFN, payers are generally required to withhold at higher rates under the PAYG withholding framework.
- Superannuation is usually still payable: Many temporary visa holders are entitled to super; some may later claim Departing Australia Superannuation Payment (DASP) after leaving (subject to conditions and withholding).
From an Australian accounting practice perspective, the compliance risk is concentrated in incorrect residency classification, WHM misclassification, TFN not provided, and failures to meet super guarantee and Single Touch Payroll (STP) reporting obligations.
Who is a “foreign worker” for Australian tax purposes?
- Temporary skilled visa holders
- Working Holiday Makers
- International students with work rights
- Seconded employees (inbound assignees)
- Remote hires physically working in Australia for part of the year
- Where the work is physically performed: Australian source and PAYG withholding obligations generally arise when services are performed in Australia.
- Visa subclass and work rights: Especially critical for WHM status and payroll settings.
- Whether they are an employee or contractor: Incorrect classification affects PAYG withholding, super, and reporting obligations (and can trigger ATO reviews).
Is the worker an Australian tax resident (and why does it matter)?
Tax residency is pivotal because Australia taxes residents differently from non-residents, and Medicare levy settings often hinge on residency and eligibility.
- Tax residency is determined by Australian law and ATO guidance, not by visa labels.
- Residency can change over time depending on their living arrangements, intention, and ties to Australia.
- Income Tax Assessment Act 1936 (ITAA 1936): The definition and framework for “resident” is contained in Australian tax law (including common law concepts reflected in the legislation).
- ATO guidance on residency: The ATO publishes residency guidance and practical tools to help individuals determine their status based on their facts and circumstances.
- Ask the worker to confirm whether they consider themselves an Australian resident for tax purposes (with appropriate guidance).
- Document the basis used (facts, dates, relocation intent, living arrangements).
- Revisit if circumstances change (e.g., they bring family, sign a long lease, extend visa, buy a car, etc.).
How does PAYG withholding work for foreign workers?
You should tell them PAYG withholding is the tax that an employer must deduct from salary and wages and remit to the ATO, based on the worker’s declaration details (TFN, residency, and WHM status).
- Apply for a TFN as soon as eligible.
- Complete the Tax file number declaration accurately (residency question is critical).
- Disclose WHM status where relevant so correct withholding applies.
- Check payslips for withholding amounts and query anomalies early.
- Do not “guess” residency if unsure—seek advice early, because incorrect withholding can create a large year-end tax bill or compliance corrections.
- Do not ignore TFN application delays—without a TFN, withholding is often significantly higher.
Practice note: PAYG withholding must be operated correctly regardless of the worker’s expectations. If withholding is wrong, the employer bears payroll compliance exposure (STP corrections, penalties, remediation).
Are Working Holiday Makers taxed differently?
Yes. You should tell WHMs that Australian law and ATO administration apply specific rules to WHMs, including distinctive withholding arrangements for WHM income.
- If they hold a WHM visa (417/462), or are treated as a WHM under ATO rules, their withholding settings may differ from “ordinary” resident employees.
- Correct WHM identification in payroll is essential to avoid systematic under/over withholding.
- Confirm visa subclass and WHM status during onboarding.
- Ensure payroll configuration reflects WHM status where applicable.
- Keep evidence on file (visa grant notice details, start date, TFN application/receipt).
(For accuracy, WHM rates and thresholds can change. ATO schedules should be checked for the current year rates and the employer’s WHM registration obligations where relevant.)
What should you tell them about Medicare levy and private health insurance?
You should tell them Medicare levy depends on their tax residency and eligibility for Medicare, and some foreign residents may be outside Medicare but still taxed as residents; this requires careful handling and evidence.
- Medicare eligibility is not automatically the same as tax residency.
- Some visa holders may be covered under Reciprocal Health Care Agreements (RHCAs) depending on country of passport and conditions.
- Medicare levy exemptions or reductions may apply where criteria are met, but documentation is essential.
- Evidence of health cover, Medicare enrolment (if applicable), and dates of arrival/departure.
- Any RHCA documentation, if relevant.
Practice note: Medicare levy and Medicare Levy Surcharge outcomes can become contentious at year-end when a worker has partial-year residency or ambiguous eligibility. Early fact-finding reduces amended return risk.
Do foreign workers have to lodge an Australian tax return?
Often, yes. You should tell them that lodging depends on their circumstances (income level, withheld amounts, residency status, and other income), but many foreign workers will lodge to reconcile tax withheld and claim deductions where entitled.
- Australian tax year: 1 July to 30 June.
- They may need to lodge after 30 June if they have earned Australian-sourced income and have PAYG summaries through STP income statements.
- Keep payslips, employment contract, visa details, TFN confirmation, and work-related expense records.
- Keep travel and date records if residency could be disputed (arrival/departure dates are often determinative in practice).
What should you tell them about superannuation and DASP?
You should tell them that superannuation is generally payable by employers for eligible employees (including many temporary visa holders), and that some temporary residents may be able to claim their super after they permanently leave Australia through a Departing Australia Superannuation Payment (DASP), subject to eligibility and withholding.
- Confirm their super fund choice (or default fund) early.
- Explain that super is not paid to them in wages; it is contributed to a super fund.
- If they leave Australia permanently and their visa ceases, they can explore DASP (timing and eligibility requirements apply).
Practice note: For employers, the obligation is to meet the Super Guarantee requirements and report via STP (where applicable). For the worker, the practical risk is lost super accounts and missing consolidation—so encourage them to create a myGov account and track super.
What should you tell them about tax treaties and foreign income?
You should tell them that Australia has Double Tax Agreements (DTAs) with many countries, which can change the taxing rights and relief from double taxation, but DTAs do not automatically eliminate Australian tax on Australian work performed in Australia.
- If they remain a tax resident of another country, they may still be taxed in Australia on Australian-sourced employment income.
- They should inform you (or their adviser) if they have:
- DTAs are implemented via Australian legislation and apply alongside domestic law. Application is fact-specific and should be advised on case-by-case basis.
What are the most common mistakes foreign workers make (and how do you prevent them)?
The most common mistakes are preventable with structured onboarding and payroll hygiene.
- Not applying for a TFN immediately, causing higher withholding and payroll corrections.
- Answering residency questions incorrectly on the Tax file number declaration (often due to confusion with visa status).
- Not disclosing WHM status (or the employer not recognising it), leading to incorrect withholding.
- Assuming cash-in-hand is “easier”: This creates significant compliance exposure (and can breach workplace and tax laws).
- Not tracking super, leading to lost accounts and delayed consolidation.
- Not keeping date records, causing residency disputes and amended return risk.
- Verify identity, visa subclass, and work rights.
- Collect TFN declaration and confirm TFN application status.
- Determine payroll tax settings (resident/non-resident/WHM where applicable).
- Set up STP reporting correctly.
- Provide a one-page “foreign worker tax summary” to the employee.
What should you say in a real-world onboarding scenario? (Examples)
You should tailor the message to the worker’s visa type and expected length of stay, while keeping it consistent with ATO requirements.
- “Your withholding depends on whether you are an Australian tax resident. This is based on your living arrangements and intention to stay, not just your visa.”
- “Please apply for a TFN this week and complete the TFN declaration accurately so we can withhold correctly.”
- “You’ll receive superannuation contributions; keep your super fund details and track them via myGov.”
Practice note: This cohort commonly becomes tax resident after settling in, and Medicare position can be nuanced.
- “Your tax withholding can be different under Working Holiday Maker rules; we must apply the correct payroll settings based on your visa.”
- “If you don’t provide a TFN, withholding may be much higher until it’s supplied.”
- “Keep your payslips and update your address; you’ll likely lodge a return after 30 June.”
Practice note: Multiple employers increases the risk of incorrect cumulative assumptions and missed income at year-end.
- “Your tax withheld is based on your declaration and income level; you may lodge a return to reconcile withholding.”
- “Keep records of work-related expenses, but only claim deductions you can substantiate.”
- “Super may still apply depending on your employment arrangement.”
Practice note: Students often misunderstand deductions and believe study costs are automatically deductible; they are not unless the nexus tests are satisfied.
How does this differ from Xero/MYOB payroll workflows, and where does automation help?
Foreign worker tax compliance is heavily documentation-driven. The problem in many practices is not “calculating tax” but preventing payroll setup errors and rework.
- Onboarding data capture:
- Reconciliation and compliance close:
- ATO-facing workflow readiness:
This matters because foreign worker issues are time-sensitive: if residency or WHM status is wrong for months, the remediation burden becomes significant.
What should your firm document to satisfy ATO expectations?
You should document the factual basis for payroll treatment and retain evidence supporting key decisions, because ATO compliance activity frequently focuses on process, records, and consistency.
- Visa subclass and work rights evidence (copy of grant notice details supplied by worker)
- TFN declaration details and date received
- Residency position (worker statement plus your file note on facts considered)
- WHM status decision (where relevant)
- Payroll settings confirmation (resident/non-resident/WHM)
- Super fund choice and contributions evidence
- Australia’s tax system is evidence-based; record-keeping supports correct assessment under the Taxation Administration Act 1953 framework and related ATO guidance on substantiation and employer reporting.
Next Steps: How Fedix can help your practice manage foreign worker tax
Fedix is designed for Australian accounting practices that need speed, control, and ATO-aligned workflows. If foreign worker payroll and year-end compliance is consuming senior time due to reconciliation delays and fragmented working papers, MyLedger (by Fedix) can materially reduce processing time through AI automation.
- Reduce reconciliation time by around 90% (commonly 10–15 minutes vs 3–4 hours per client) so staff can focus on high-risk items like residency, WHM status, Medicare settings, and substantiation.
- Improve consistency with automated workflows and centralised documentation handling for compliance files.
- Support scalable delivery so the practice can handle more clients without proportionate headcount increases.
Learn more at home.fedix.ai and consider a MyLedger workflow review for your firm’s onboarding, payroll hygiene, and compliance processes.
Conclusion
What to tell your foreign worker about tax in Australia is established: get the TFN and declarations right immediately, identify tax residency and WHM status correctly, explain PAYG withholding and likely return obligations, and ensure superannuation is understood and tracked. From an Australian accounting practice perspective, early documentation and correct payroll configuration are the difference between routine compliance and costly remediation.
Disclaimer: This information is general and current as of December 2025. Australian tax laws are complex and subject to change, and outcomes depend on individual circumstances (including visa status, residency facts, and treaty position). Professional advice should be obtained for specific cases.