Income Tax: A Primer for Novices

Everyone who makes money in Australia is required to pay income tax, but for the vast majority of taxpayers, filing their returns has evolved into a routine that is relatively uncomplicated and occurs on an annual basis. But what if you're someone who has never dealt with taxes before?  

Perhaps you are beginning your first job after school, perhaps you have recently graduated from high school or university and are beginning your first job, or perhaps you are a migrant who has just recently arrived in the country. Whatever the reason may be, it is understandable that you do not yet have a complete understanding of how the income tax system works in Australia. But don't worry, we're here to help, and just for you, we've put together an easy-to-follow guide for beginners:

WHAT Does the Income Tax Entail?

Taxes on income are levied on all sources of revenue, including salaries and wages from employment, profits from a business venture, and returns on investments, such as interest and dividends from financial institutions. Additionally, you may be required to pay it if you dispose of or donate a valuable asset, such as a home or shares in a company.

It is possible for an individual to have a taxable income of up to $18,200 per year without having to pay any income tax; this amount is referred to as the tax-free threshold. On the other hand, if your annual income is greater than $18,200, it is highly likely that you will be required to pay tax.

The taxation system in Australia is referred to as a "progressive tax system." This indicates that the tax rate you are required to pay will increase proportionately with the amount of money you bring in. Our standard rate of taxation is 19%, and it does not apply until you have earned more than the amount that is exempt from taxation. The top tax rate in the United States is 45%, but it is only applied to incomes that are greater than $180,000. The majority of taxpayers pay taxes at a rate that falls somewhere in the middle. These prices do not take into account the Medicare levy (which is 2% for most people) or the Medicare levy surcharge (which high-income earners who do not have private hospital coverage are required to pay).

FOR THE YEARS 2021-22 AND 2022-23, THE CURRENT RESIDENT TAX RATE BRACKETS IN AUSTRALIA

Please be aware that the 2% Medicare levy is not reflected in the above rates.

INCOME THAT MAY BE SUBJECT TO TAXATION

There are many different ways one can bring in money, including the following:

• Earnings from a job include things like salary and wages, allowances, bonuses, tips, fringe benefits, lump sum payments, and contributions to a pension or other retirement plan.

• In addition to the age pension, Austudy, Abstudy, Jobseeker, youth allowance, carer payments, and parenting payment, Centrelink and other forms of government assistance are referred to as "payments."

• Earnings from investments, including interest from banks

• Earnings from businesses

HOW DO I MAKE MY INCOME TAX PAYMENTS?

If you are an employee, your wage or salary will have income tax automatically deducted from it and paid directly to the Australian Taxation Office (ATO). This means that the amount of money that will be deposited into your bank account on payday will be the amount that is left over after tax has been deducted.  

You are responsible for reporting and paying income tax on any other forms of income, such as profits from a business or interest from a bank account.

An income tax return is a document that records all of your income for the year and allows you to calculate your tax liability using that income. The majority of taxpayers are required to complete an income tax return each year. Sometimes, by the end of the year, your employer will have already paid a sufficient amount of tax on your behalf, and as a result, you won't have any tax debt to pay to the taxman. Many times, in point of fact, you will find that you have paid a little bit of an excessive amount of tax, and you will be qualified for a refund. If you have income from sources other than your job, or if none of your income comes from paid work, it's highly likely that the tax liability you calculate on your tax return will require you to pay tax on some or all of that additional income.

WHO IS REQUIRED TO FILE A TAX RETURN?

The following categories of taxpayers are required to file tax returns:

• The vast majority of resident individuals whose annual total income is greater than the tax-free threshold of $18,200 for the current income year

• Every person who engages in self-employment, whether for profit or not, is included in this definition.

• Any resident taxpayer who has had tax withheld from their income through their place of employment and whose annual income is less than $18,200

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WHEN DO I NEED TO DO MY TAX RETURN, AND HOW LONG DO I HAVE?

Each year, you are required to file your tax return as soon as possible after the 30th of June, but you can't do so later than the 31st of October (the deadline).  

If you submit your tax return through a tax agent such as H&R Block, then you will normally be granted an extension of this deadline beyond the 31st of October. However, this extension will only be granted to you if you are listed with the ATO as a client of the tax agent by that date.

AND WHAT ABOUT DEDUCTIONS

You can use your tax return to not only report your income, but you can also use it to claim deductions for certain expenses that you incurred as a result of your work activities throughout the year. Your taxable income will go down thanks to these deductions, which are also one of the primary reasons why so many people get a tax refund when they turn in their tax return.

Expenses that are directly related to your job are eligible for deductions in the vast majority of cases. If you have spent money on something that is necessary for you to do your job (such as buying uniforms, paying for travel, or continuing education expenses), you might be able to deduct that expense from your taxes.
 

The following are some examples of deductions that you might be able to claim on your taxes:

• Expenses incurred for the vehicle and travel
• Costs associated with attire, laundering, and professional dry cleaning
• Home office overhead costs.
• Equipment designed to keep workers safe, such as hard hats, gloves, safety glasses, sun glasses, and face masks
• Rapid Rapid Antigen Tests were purchased because they were a requirement for work, and hand sanitizer was required because it was a requirement for work.
• Expenses related to one's own education
• The various assets, including tools and equipment.
• Expenses incurred in the management of tax matters
• Donations of money and goods
• The interest that is levied by the ATO
• Deductions for interest, dividends, and other types of investment income
• Personal super contributions
• The purchase price of a foreign pension or annuity that has not been deducted.

However, it is a good idea to double check anything you are looking to claim with your tax agent first to ensure that it is eligible. Additionally, it is essential to have receipts and documentation to support each and every claim that you make. Keep in mind that you should only request things to which you are legally entitled. You are not allowed to deduct personal expenditures or items that have already been paid for by your employer. If you are unsure, you can always ask one of the tax professionals at H&R Block by popping into the office that is most convenient for you.

HOW COMPLICATED IS THE INCOME TAX?

It is possible, which is why a large number of individuals opt to have their tax return prepared by a tax professional at a company like H&R Block. Obtaining the assistance of a professional alleviates the stress associated with the process and ensures that your return is filed accurately and on time. The best part is that tax preparers can frequently point out deductions that taxpayers are eligible for but are unaware they can claim.

Dial 13 23 25 right away, or schedule an appointment at the office that's most convenient for you.