Understanding income tax and support during tax time.
The primary form of taxation in Australia is income tax, which is applied to any income you earn including wages, returns on investments, Centrelink payments, and any business earnings.
While most people must pay taxes, many of us do not understand how it works, the processes by which we can reduce our tax bill, or how to manage tax debt. So to help you get on top of your tax time obligations, we’ve compiled some information, resources, tools to help you out, and links to support in case things go wrong.
What does tax pay for?
Taxation plays a vital role in our community. Through money raised in taxes, governments are able to pay for everything that governments do. This includes infrastructure building, services like healthcare and schools, funding for institutions like art galleries, public broadcasting, government payments like Jobseeker, national defence, and more. Without taxation, Australia could not function as a society.
Types of tax
Before you keep reading. There are many different kinds of tax and this article is focused on income tax only. So if you’re here to learn more about something else, start at the links below.
| Goods and Services Tax (GST) | paid by everyone on the purchase of most products and services |
| Capital Gains Tax | for the sale of large assets |
| Medicare Levy | pays for the Medicare public health insurance scheme |
| Land Tax | paid to state and territory governments by people who own property |
| Stamp Duty | paid to state and territory governments on the sale of property like houses or cars |
| Businesses | like Company Tax, Payroll Tax, and Fringe Benefits Tax |
Income tax basics
When you earn money, you must pay a part to the government as income tax. So that’s earning from work, interest on investments, government payments, superannuation, or foreign payments.
Who pays your taxes to the government?
In Australia, your income tax is usually paid on your behalf by your employer before your pay is transferred to you. If you’re self-employed, it’s up to you to set aside money for income tax.
What does it cost?
The amount of income tax you pay is based on the amount of money you earn. Under a certain amount of income, you don’t have to pay any tax.
How you pay income tax
All residents of Australia for tax purposes who earn over $18,200 a year (known as the tax-free threshold) pay income tax. This isn’t just on wages, but all other forms of income.
You’ll need a Tax File Number to pay your taxes. This is a personal reference number that identifies you for taxation purposes. You can apply for a TFN for free.
Your tax rate
You can generally only claim the tax-free threshold from one employer. The government sets the income tax rate and the tax-free threshold. This is generally done to the principle that people who earn more, pay more.
Visit the Australian Taxation Office (ATO) to find the current income tax rates and planned future rates.
Employees, freelancers and who does what
The nature of your work dictates how your taxes are collected.
Permanent and casual employees
If you’re employed in full-time, part-time, or casual work, your employer should pay your income tax for you out of your pay. This is called ‘pay as you go’, abbreviated to ‘PAYG’.
You may have also heard of ‘tax withholding’. Your employer should make a calculation of how much you should pay in tax based on your income. This will be set up when you start employment by filing out a tax file number declaration form.
Freelancers and everyone else
For the people who don’t have an employer – self-employed, freelancing, contracted, or working in the gig economy – you need to set aside the funds yourself as the money comes in from your customers. You might want to have a savings account specifically for this purpose and nothing else.
Filing a tax return
Each year at ‘tax time’, people who earn income and pay tax are expected to file or ‘lodge’ a tax return for the previous financial year, even if they haven’t paid tax during that time. This occurs each year from 1 July – 31 October.
What is a tax return?
A ‘tax return’ is a way of declaring what you’ve earned for the year, how much tax you paid, and any costs you incurred that you think could be deducted from your tax bill. See how to work out if you need to lodge a tax return.
Where to lodge your tax return
You can submit a return yourself via My Gov or get help from an accredited accountant.
How your tax is calculated
When the tax office receives your tax return, they assess how much tax you should have paid through the year and how much was paid by your employer. Based on this calculation and any deductions you make, you are either refunded for excess tax that you paid or billed for tax that you owe on top of what you paid.
Visit Moneysmart for details on lodging a tax return and how to claim for reductions in your tax bill.
Reducing your tax bill
Even for people paying a modest amount of tax, receiving a tax bill can sometimes be quite a financial shock. Especially if you’ve just started paying any HELP Loan debt or a trade loan, or you’re self-employed and must pay your tax in one go. The good news is that there are some simple ways to reduce the amount of tax you pay.
1. Learn the ATO’s rules
Claiming deductible expenses in your tax return
Personal contributions to super (especially if you’re self-employed)
2. Keep good records
Taking exact financial records will help you ensure you never miss a deduction. It also comes in handy if you’re ever audited.
3. Get expert help
Accountants are professionals who can help you to navigate the confusion of tax time, though it’s important to know how much the service will cost before committing.
Useful ATO resources
| Free tax help | This free tax help program by the Australian Tax Office (ATO) helps people who earn $60,000 or less to lodge a tax return. The ATO also produces information in a variety of community languages. | |
| Lost or stolen Tax File Number | If you think your Tax File Number has been stolen or you have lost any records of it, report it to the ATO. | |
| Tax debt | Dealing with tax debts – National Debt Helpline Help paying tax debts – ATO resource for payment plans and deferring payments Removing your debt – the ATO can ‘release’ debt in some circumstances of financial hardship Loans and debt – see our resources for getting on top of debt | |
| Complaints about the ATO | Your first step is to follow their complaints procedure, whether you need to dispute a decision the ATO has made or feel you’ve been treated unfairly. If that doesn’t work, you can appeal the decision through the Administrative Appeals Tribunal (AAT). | |
This information was last updated on 5 June 2023.
The links and resources in this article have been compiled and reviewed by the Brotherhood of St. Laurence. We aren’t responsible for what you’ll find at the links, though we do hope you find the information useful. See our disclaimer if you’d like to know more.
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