Completing your tax return for the first time might seem like a daunting task but once you grasp the basic information needed to understand the process it will seem less scary in reality.
Ultimately, if you do it right, you can see a huge amount of your hard-earned cash land back in your bank account each year, thanks to the Australian Tax Office (ATO).
Here are some important FAQ’s about completing tax returns in Australia.
What Is Tax And Who Has To Pay It?
The ATO collects a percentage of everyone’s income to pay to the government. The government uses this money to pay for transport, hospitals, schools, roads, living services and pretty much everything we need. The majority of Australians people hate paying tax but without it, our country would be nowhere near developed as what it is.
When Does A Person Have To Start Paying Tax?
You start paying tax as soon as you start earning money. However, you may get this money back at the end of each tax year, if you earn less than $18,200 per year.
As soon as you start work, you will need a tax file number (TFN) so that you can be taxed correctly by your employer. If you don’t have one, your employer will take 49 percent tax from your wages.
What Is A Tax File Number?
Your TFN is a 9-digit number that is part of your unique identity. This number is your TFN for your whole life and is also used by other government agencies and financial institutions to identify you. Always keep your TFN safe and do not show it to anyone.
Your Tax File Number is like a driver’s license, in the sense that it is yours and it is private. Try your best not to lose it and let other people have it.
Every time you commence working at a new job your employer will give you a Tax File Number Declaration Form to complete when you start. In this form you provide your employer with your TFN. The form also includes questions about your residency status, citizenship and other tax related questions. Your employer will apply the information provided in this form to work out how much tax you should pay.
When you start a new job make sure you select ‘Yes’ to the question “Do you want to claim the tax-free threshold from the payer?”
You are entitled to earn a tax-free amount each year of $18,200. If you don’t tick the box you will end up paying more tax than you should.
How Do You Apply To Obtain A Tax File Number?
You can submit a Tax File Number application online via the Australian Government’s MyGov Website or in person at a post office. You can also request for your tax agent to do a TFN application for you.
There is no charge if you make the application yourself. Once processed, you receive it in the mail, so make sure to provide a correct, safe mailing address.
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
Important Information About Income Records
Prior to 2019, a taxpayer needed a payment summary (PAYG) from your employer. If you had more than one job in any tax year you were sent a payment summary from each employer. Now an Income Statement is sent directly to the ATO by your employer(s) instead.
An income statement shows the amount you have been paid, the amount you were taxed, the amount of Superannuation your employer has paid on your behalf and any additional payments you have paid into your Super fund yourself. It also includes any allowances you were paid.
A Taxpayer Doesn’t Need To Get Their Income Statement From The ATO
Contrary to what your HR department were told to tell you, you don’t need to get your income statement from the ATO to do your tax return.
Other Income Records
You should also provide evidence of any other income you have received over the past 12 months this includes:
- interest on savings
- income from any activity in the sharing community (Uber, AirBnB etc.)
- any freelance income
- rent you received from renting out a room privately
- rental income on any investment properties you own or have a share in
- any other form of income that you received.
