In 2021 Tax Tips

All You Need To Know About The Australian Income Tax System

As tax season approaches, many Australians wonder what they need to do to file their taxes. 

This article will provide an overview of the Australian income tax system, including information on who has to pay taxes, taxable income types, and how the tax system works. So if you’re curious about Australia’s income tax system, read on!

Are you a foreigner living in Australia? Or are you an Australian citizen who has been living and working abroad for a while? If so, then it’s important to understand the Australian income tax system so that you can plan your finances accordingly. 

In this post, we will outline the basics of how the system works and provide some tips on how to minimise your tax bill. So whether you’re just curious about Australian taxes or need to do some planning, read on!

Anyone living in Australia and earning an income will need to understand the Australian income tax system. The good news is that it’s fairly straightforward, and there are several resources available to help you understand it all. 

In this post, we’ll take a look at some of the most important aspects of the system so that you can be sure to stay on top of your taxes.

Millions of people file their taxes in Australia each year. It can be a daunting task, but it’s important to understand the Australian income tax system so you can calculate your tax liability correctly. 

In this post, we’ll outline the basics of the Australian income tax system and provide some helpful tips on how to file your taxes. So read on for all you need to know about filing your taxes in Australia!

Do you know how the Australian income tax system works? Do you know what you need to do to file your taxes correctly? 

This blog post will provide an overview of the Australian income tax system, including information on who is required to file a tax return, what deductions and credits are available, and how to go about filing your taxes.

Did you know that Australia has a progressive income tax system? This means that people who earn more money pay a higher tax percentage than those who earn less. In this blog post, we’ll take a closer look at the Australian income tax system and what you need to know about it. We’ll also provide some tips on how to minimise your tax liability.

It can be tough to keep track of all the different rules and regulations, but fear not – we’re here to help. In this blog post, we’ll give you a comprehensive overview of the Australian income tax system, including key facts and figures, important dates, and how to go about filing your tax return.

So whether you’re a first-time taxpayer or you’ve been paying taxes for years, read on for everything you need to know about Australia’s income tax system.

If you’re an Australian citizen or resident, you’re required to pay income tax on your taxable income. 

The Australian income tax system can be complex, so it’s important to understand the basics before filing your return. This post will provide an overview of the system and answer some common questions about taxation in Australia.

The amount of tax you need to pay depends on your taxable income and the tax rates that apply to your situation. In this blog post, we’ll outline the key aspects of Australia’s income tax system so that you have a better understanding of what’s involved. 

We’ll also provide some tips on reducing the amount of tax you have to pay.

Let’s get started!

What Is Income Tax?

Income tax is the most significant stream of revenue in the tax system; it consists of three main pillars:

  • Personal earnings
  • Business earnings
  • Capital gains

Income tax is applied to an individual’s taxable income and is paid on all forms of income. This includes wages from your job, profits from business and returns from investments. Income tax can also apply to assets such as when a house or shares are sold.

Taxpayers with two or more jobs or other taxable income sources should be aware that they may be caught in an unintentional tax trap due to the tax-free threshold.

Income tax rates

Australia has a progressive tax system, which means that the higher your income, the more tax you pay.

You can earn up to $18,200 in a financial year without paying tax. This is known as the tax-free threshold, and after which, the tax rates kick in.

The lowest rate is 19%, and the highest rate is 45%, which is only charged on income over $180,000. So most Australians sit in the middle bracket.

You are also taxed on superannuation contributions and earnings, and there are several tax benefits to paying money into your fund.

Working holidaymakers (visa types 417 and 462) pay 15% on all income up to $45,000, then resident rates on all income from $45,001 onwards.

Lodging Your Return

Lodging your tax return can be done anytime after June 30, and the absolute deadline for self-lodgement is October 31. Whilst there is the option to the self lodge, it is best to go through a tax agent to ensure everything is filled out correctly and you receive the best return possible promptly.

To ensure the lodgement process is as smooth as possible, ensure you have all your important documents together before coming in for your appointment or lodging online. 

Filing away important receipts, invoices and documents throughout the year will save you a lot of time when it comes to completing your return. 

It’s also important to ensure all your details are up to date. For example, if you’ve moved or changed your name, the ATO needs to update these details. Minor errors like these can hold your return up for weeks or even lead to fines.

If you’re retired or have access to your super fund, you must be fully aware of your tax obligations. People of different ages have different obligations when it comes to tax on superannuation withdrawals.

Deductions

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Tax deductions are expenses that you have incurred during the financial year for work purposes. Overall, tax deductions reduce taxable income and are often why people get a tax refund.

Any money spent as part of your work is tax-deductible. If you spent money on something to allow you to do your job, you are entitled to claim that cost as a deduction. 

For example, travel expenses for work purposes or the cost of uniforms. In addition, if you use your laptop, desktop, tablet or phone for work, you can claim a deduction for work-related use of the device. 

It is important to remember only to claim what you’re entitled to. Private expenses or any costs reimbursed by your employer cannot be claimed. Claiming what you’re not entitled to can lead to fines and a stressful audit by the ATO.

Protect your information

It’s important to protect your personal information.

Your TFN is with you for life, so keep it secure. You keep the same TFN even if you change your name or address, change jobs, move interstate, or go overseas.

Don’t let anyone else use your TFN, not even friends or relatives. Allowing someone else to use it, giving it away or selling it is a crime.

Only give your TFN to:

  • us when discussing your tax records
  • your employer after you begin work, but don’t provide it on job applications
  • your bank or other financial institutions
  • Services Australia
  • your registered tax agent
  • your superannuation (super) fund
  • your higher education provider or university to access a student loan such as the Higher Education Loan Program (HELP).

If you think your TFN is lost, stolen or misused, report it to us immediately.

Make sure you keep personal identity details secure to help prevent identity crime. Identity crime happens when people’s identity details are used to commit crimes. Remember:

  • don’t share your myGov or other online passwords with anyone – not even your tax agent (if you use one) needs these
  • don’t include your TFN, passwords or other sensitive information in emails.

Scam emails, faxes, SMS and phone calls can look and sound very convincing.

What Is A Tax (Financial) Advice Service?

Legislative background

Tax (financial) advice service’ is defined in section 90-15 of the Tax Agent Services Act 2009 (TASA) as follows:

A tax (financial) advice service is a *tax agent service (other than within the meaning of subparagraph (1)(a)(iii) of the definition of that expression) provided by a *financial services licensee or a *representative of a financial services licensee in the course of advising a kind usually given by a financial services licensee or a representative of a financial services licensee to the extent that:

the service relates to:

  • ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a *taxation law; or
  • advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; and

the service is provided in circumstances where the entity can reasonably be expected to rely on the service for either or both of the following purposes:

  • to satisfy liabilities or obligations that arise, or could arise, under a taxation law;
  • to claim entitlements that arise, or could arise, under a taxation law.

The Board may, by legislative instrument, specify that another service is a tax (financial) advice service.

However, a service is not a tax (financial) advice service if:

  • it consists of preparing a return or a statement like a return; or
  • it is specified in the regulations for this paragraph

To be a tax (financial) advice service, the service must be a tax agent service [2], but it excludes representing a client to the Commissioner of Taxation (Commissioner). Only registered tax and BAS agents are permitted to represent the Commissioner.

For example, tax advice provided in circumstances where an entity (or client) can reasonably expect to rely on it to satisfy liabilities or claim entitlements under the taxation laws [3] is a tax agent service that will generally also be a tax (financial) advice service.

In contrast, ‘general advice’ as defined in section 766B of the Corporations Act 2001 will not be a tax agent service (and therefore also not a tax (financial) advice service) as it does not take into consideration a client’s specific circumstances and hence it is not reasonable to expect an entity to rely on it.

To be a tax (financial) advice service, a service must be provided by a financial services licensee or a representative.

Under the Corporations Act 2001, an entity (or provider) that carries on a financial services business in Australia needs to hold an ‘Australian financial services licence’ (AFS licence) unless an exemption applies. 

For example, an entity does not need to hold a licence to provide financial services representative of a financial services licensee.

A representative (of a financial services licensee) is defined in paragraph 910A(a) of the Corporations Act 2001 and includes an authorised representative. 

As defined in section 761A of the Corporations Act 2001, an authorised representative is a person authorised to provide financial services on behalf of a financial services licensee.

Tax (Financial) Advice Services

A tax (financial) advice service consists of five key elements:

  • a tax agent service (excluding representations to the Commissioner of Taxation)
  • provided by an Australian financial services (AFS) licensee or representative of an AFS licensee
  • provided in the course of advice usually given by an AFS licensee or representative
  • relates to ascertaining or advising about liabilities, obligations or entitlements that arise, or could arise, under a taxation law
  • reasonably expected to be relied upon by the client for tax purposes.

Example Of Tax (Financial) Advice Services

  • Any service specified by the TPB by legislative instrument to be a tax (financial) advice service.
  • Personal advice (as defined in the Corporations Act 2001), including scaled and intra-fund advice, involves applying or interpreting the taxation laws to a client’s personal circumstances. Accordingly, it is reasonable for the client to rely on the advice for tax purposes.
  • Any advice (other than a bit of financial product advice as defined in the Corporations Act 2001) that is provided in the course of advising a kind usually given by a financial services licensee or a representative of a financial services licensee that involves application or interpretation of the taxation laws to the client’s personal circumstances, and it is reasonable for the client to expect to rely on the advice for tax purposes.

Not Tax (Financial) Advice Services

  • Factual tax information does not involve applying or interpreting the taxation laws to the client’s circumstances. Such information could be included in, but is not limited to:

                -regulated disclosures such as product disclosure statements and financial services guides

                -other products such as general marketing and promotional materials.

  • Client tax-related factual information. Such information includes, but is not limited to:

                -payment summaries

                -other documents such as an annual summary of interest paid and account statements.

  • General advice (as defined in the Corporations Act 2001).
  • Any service that does not consider an entity’s relevant circumstances so that it is not reasonable for the entity to expect to rely on it for tax purposes. This includes simple online calculators defined in the Australian Securities and Investments Commission’s Class Order (CO 05/1122).
  • The factual information provided by call centres and front line staff and specialists would not be expected to be relied upon for tax-related purposes.
  • Preparing a return or a statement like a return (to provide this service would require registration as a tax agent).
  • Preparing an objection under Part IVC of the Taxation Administration Act 1953 against an assessment, determination, notice or decision under a taxation law.
  • A service specified not to be a tax agent service in Regulation 13 of the Tax Agent Services Regulations 2009.
  • Dealing with the Commissioner of Taxation on behalf of a client. This may include, for example, applying for a private binding ruling on behalf of a client.

FAQs

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1. Do I have to declare my tax return income from Centrelink (Newstart, Austudy)?

All income must be declared. This is because the tax office needs to determine what tax rate applies to your other earnings for the year. You may be entitled to an offset to ensure that no tax is payable on your benefit.

You can access the information required from Centrelink online services, Express plus mobile apps, and self-service terminals at Dept. Human Services Service Centres.

2. I have just moved permanently to Australia. Do I have to pay tax on the money I have brought with me?

You will only have to pay tax on any earnings you made when you moved to Australia. However, if the money that you brought with you earns interest in a bank account, you will have to pay tax on the interest.

3. I will be going to Europe for six months and intend to work while away. Will I have to pay tax in Australia on the money I earn overseas?

The income will be taxable unless you have worked overseas continuously for more than 90 days and are working on a specific Australian government project or deployed overseas as a member of an Australian government agency. In these cases, the income will be tax-exempt.

If your overseas income is not exempt, you will need to declare the income on your Australian tax return and may be entitled to a foreign income tax offset for any foreign tax you paid on that income.

4. Are my education expenses claimable against AUSTUDY?

In March 2012, legislation was passed, and Tax Laws Amendment (2012 Measures No. 1) Bill 2012 now denies any deduction for study expenses for full-time students who receive Youth Allowance, Austudy or Abstudy.   

Disallowing a deduction for expenses incurred in gaining or producing a debatable benefit recognises that taxable government assistance payments are effectively tax-free, and individuals should not be able to receive an additional benefit by way of a tax deduction against their assessable income for any expenses they incur in qualifying for the payment.

5. I have a HECS-HELP debt and have been thinking about making some extra payments to pay it off quicker. Will I get any tax benefits for doing this?

If you make an advance payment of at least $500, or enough to clear the debt entirely, you will receive a 5% discount on that payment. Therefore, it is good to make the payment before June 1, when the annual indexation is calculated. 

The indexation rate is 2.1%. You should be aware that if your HELP repayment income is above $53,345 and you still have an outstanding HELP balance, you may also be required to make a compulsory payment when you lodge your tax return.

Although the Government intends to remove the bonuses, the enabling legislation had not been approved by parliament at the time of writing.

6. I am an early childhood education teacher with a HECS-HELP debt and have heard that I can get some assistance to reduce that debt. What do I have to do?

A new benefit was made available from the 2009 income year onwards, which reduces the compulsory HELP repayment or accumulated HELP debt for eligible graduates in science, maths, nursing (including midwifery) or early childhood education.

The reduction amounts are indexed annually and must be applied for after the financial year. There is a fixed claim period of 2 years from the end of the financial year.

The benefit was designed to encourage maths and science graduates to work in specified occupations and early childhood teachers to work in specified locations. The benefit must be applied for each year, and forms are available from the tax office or downloaded from www.ato.gov.au. 

7. I was unemployed during the year. Can I claim the money I spent looking for a job as a tax deduction?

After the Anstis case in November 2010, a deduction was allowed for job-seeking expenses for 2007, 2008, 2009 and 2010 years for taxpayers in receipt of a Newstart Allowance or Youth Allowance who were job seekers.  

In the 2011 year, expenses were again allowed for those receiving a government Newstart or Youth Allowance payment for expenses directly related to seeking paid work. However, all expenses had to be fully substantiated, and taxpayers must have kept written evidence to prove the expense had been incurred. 

This means receipts MUST have been kept. However, in March 2012, legislation was passed now the Government denies any deduction for job-seeking expenses by those who receive Newstart or Youth Allowance.

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