Taxation in Australia - Part 1
Disclaimer: We do not provide tax or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax or accounting advice. You should consult your own tax and accounting advisors before engaging in any transaction.
Personal finance and taxes go hand in hand. Whatever you do - work, business, investment etc., you need to pay taxes and having an understanding of at least the basics can save you money, time and stress. This will be a long read and hope it will help you a little bit.
DIY or Tax Agent
Well, it depends on how complex your finances are. It's complicated when you have multiple income streams like businesses and investment incomes.
If it's straightforward, DIY or else, talk to a registered tax agent. Before working with one, contact them and get a quote. They usually bill per hour and their fees are tax deductible for the next FY tax preparation so it can be costly.
First Things First
👉 The tax year runs from July 1 to June 30 and most are required to lodge their returns by October 31. If you use a tax agent, they can lodge it later than the 31 October deadline.
👉 Make sure you have a TFN, mygov account and ATO is linked to mygov.
👉Know your residency status. Residency for taxation purposes is different from that of immigration. For more information, https://www.ato.gov.au/Calculators-and-tools/Work-out-your-tax-residency/
📝 Residents are taxed on their income worldwide unlike temporary residents* and non-residents.
📝 Residents are liable to pay the Medicare levy unlike temporary residents* and non-residents.
*You are a temporary resident if:
✔ you hold a temporary visa granted under the Migration Act 1958
✔ you are not an Australian resident within the meaning of the Social Security Act 1991 meaning an Australian resident is generally who resides in Australia and is either an Australian citizen or holds a permanent visa.
✔ your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.
*To claim for the Medicare Levy exemption, you need to apply for a Medicare Entitlement Statement to Medicare - https://www.servicesaustralia.gov.au/individuals/services/medicare/medicare-entitlement-statement.
👉 Know your sources of income. Common sources include but are not limited to:
- Employment income - pre-filled. You can check it under "Income Statements" (Employment tab). Tally the figure (Gross Salary less Withheld Taxes) to the amount you received in your bank statement. Once the employer finalises it, you can see "Tax Ready" in the income statement.
- Cash income - if as an employee then 'Salary or wages' or else 'Business Income'.
- Australian government allowances - not sure if this will be pre-filled but Centrelink will send a statement on how much money you received and if there are any taxes withheld. You can check it in their app under "Income Statements". FTB and CCS are not included here. They are balanced based on the actual income. To know what government allowances are taxed, refer to this https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Government-payments-and-allowances/.
- Gross Interests - pre-filled from Australian banks.
- Dividends - pre-filled
- Foreign Overseas income
- Capital gains and losses
If you are doing a DIY and it's your first time to do it, you can refer to ATO for some helpful tips - https://www.ato.gov.au/Individuals/myTax/ (just select the year you want to prepare). They also provide PDF formats like this for 2020 which is very helpful - https://www.ato.gov.au/uploadedFiles/Content/IND/downloads/Individual-tax-return-instructions-2020.pdf.
- 19% rate ceiling lifted from $37,000 to $45,000
- 32.5% tax bracket ceiling lifted from $90,000 to $120,000
- LITO from $445 to $700