Income tax is something that must be paid for anyone earning money in Australia and for most people the process of putting in a tax return has become a pretty straightforward once a year habit. But what if you’re new to the tax system?

Maybe you’re starting your first after school job, or you’ve just finished high school or university and heading into your first job, or you’re a recently arrived migrant. Regardless of the reason, it’s understandable that, you might not fully grasp the income tax system in Australia just yet.

Here are some answers to some of the most common questions individuals might have if they are unfamiliar with how Australia’s tax works.

What Is The Definition of Income Tax?

Income tax a tax that is paid on all forms of income, such as; wages from your job, profits from your business and returns from investments such as bank interest and dividends. It can also be payable if you sell or give away a valuable asset such as a house or shares.

Each individual is allowed to have income of up to $18,200 each year without paying income tax, and this is called the tax-free threshold. However, if your income is more than $18,200 then you will most likely be required to pay tax.

Australia has what is referred to as a ‘progressive tax system’. This means the higher your income, the higher the rate of tax you need to pay. Our lowest tax rate is 19 percent and this kicks in on the first dollar you earn over the tax-free threshold. Our highest tax rate is 45 percent but this is only charged on income over $180,000 and most people pay somewhere in between. These rates do not include the Medicare levy (2 percent for most people) or Medicare levy surcharge (payable by high income earners who do not have private hospital cover).

How Much Tax Does A Person Have To Pay Each Year?

The amount of tax a person is required to pay will depend on how high your income is and other various circumstances. Ultimately, the more you earn, the larger percentage of tax you pay.

Here is the current amount of tax you pay for each income bracket. You’ll notice that if you earn very little, you don’t pay any tax at all. If you earn a lot, you pay a lot more.

• $0 to $18,200 – No Tax
• $18,201 to $45,000 – 19 cents for each $1 over $18,200
• $45,001 to $120,000 – $5,092 plus 32.5 cents for each $1 over $45,000
• 120,001 to 180,000 – $29,467 plus 37 cents for each $1 over $120,000
• 180,001 and over – $51,667 plus 45 cents for each $1 over $180,000

Who Is Required to Submit a Tax Return?

Taxpayers who must submit a tax return include:

• Most resident individuals whose total income exceeds the $18,200 tax-free threshold for the income year
• Every individual carrying on a business or profession regardless of income or loss
• Any resident taxpayer earning less than $18,200 who has had tax withheld from that income through their job

How Does a Person Pay Income Tax?

If you work for an employer, income tax will be automatically deducted from your wage or salary and paid directly to the Australian Taxation Office (ATO). This means that the amount you receive in your bank account every payday is the amount after tax.

With other forms of income, such as business profits or bank interest, you have to account for income tax yourself.

Every year, most taxpayers need to complete an income tax return, which is a document that records all your income for the year and allows you to work out your tax liability. Sometimes, your employer will already have paid enough tax on your behalf during the year, so you won’t owe any tax to the taxman. Often, in fact, you’ll have paid a little bit too much tax and you’ll be eligible for a refund. If you earn other income outside your job, or if none of your income is from a paid job, it’s most likely you’ll have to pay tax based on the liability you calculate in your tax return.

How Long Does It Usually Take For A Taxpayer To Receive Their Tax Refund?

In most cases taxpayers will receive their tax return in less than 14 days. However, the ATO do however reserve the right to take 30 days to check your tax return. If your tax return is taking longer to process it is recommended that you contact the team at Vault Business Advisors to your situation and will email you when the ATO provide further updates.

When Is The Deadline To Lodge My Tax Return?

You are required to lodge your tax return as soon as possible after 30 June and no later than 31^st October each year.  

If you lodge your tax return through a tax agent, you will most likely be given an extension of this deadline beyond 31^st October, but only if you are listed with the ATO as a client of the tax agent by that date.