INTRODUCTION
Every year, our team get tonnes of enquiries from new migrants to Australia who are feeling confused about our taxation system and what they need to do in order to have their personal income tax return prepared.
ANNUAL TAX RETURN
The Australian financial year is 1 July – 30 June. Once the financial year has concluded most individuals must lodge their personal income tax return with the Australian Taxation Office (ATO). You report your income, deductions, and any other financial information for the applicable financial year. You may receive a tax refund if you’ve overpaid taxes or owe additional tax if you’ve underpaid. You can claim deductions for work-related expenses, such as uniforms and tools, and other allowable expenses. There are also tax offsets and credits available for specific situations such as the Australian Government Rebate for private health insurance. Australians are required to pay a Medicare Levy, which helps fund the public healthcare system. If you have private health insurance, you may be eligible for a Medicare Levy Surcharge exemption. Your tax return can either be done by yourself, using MYGOV, or, via the assistance of a tax agent.
INCOME TAX
Australians pay income tax on their earnings, including salary, wages, business income, and investment income. The tax rate varies based on your income level, with higher earners paying a higher percentage.
TAX FILE NUMBER (TFN)
To work in Australia and pay taxes, you require a Tax File Number (TFN). You can apply for a TFN online or at an Australian Taxation Office (ATO) office.
PAY AS YOU GO (PAYG)
If you work as an employee, your employer will withhold income tax from your wages under the PAYG system. This helps distribute the tax liability evenly throughout the year. The income you earn as an employee along with the tax withheld on your income gets reported to the ATO each time you are paid. When it is time to prepare your tax return, this information generally pre-fills into your tax return form, meaning that you’ll generally just need to include any applicable tax deductions against this income in order to complete your income tax return.
SOLE TRADERS
You’ll require an Australian Business Number (ABN) and a business schedule to report your business income & expenses will be included within your personal tax return. After your first sole trader tax return is lodged with the ATO, if you are profitable- you’ll likely be put onto the PAYG system mentioned above in order to spread your tax liability throughout the financial year. If your turnover is greater than $75K then you’ll need to register for GST (see below).
GOODS AND SERVICES TAX (GST)
GST is a 10% tax applied to most goods and services in Australia, including everyday items like food and clothing. Businesses usually include GST in their prices, and consumers pay it indirectly. For more information, visit our blog post: GST for beginners.
CAPITAL GAINS TAX (CGT)
If you sell an asset like property or shares for a profit, you may be subject to CGT. The rate varies, and there are exemptions and concessions available. For more information visit our blog post: Capital Gains Tax – how it operates in Australia.
WHAT IS A TAX DEDUCTION?
In Australia, a tax-deductible expense is an expense that can be subtracted from your taxable income on your tax return. To qualify, the expense must be:
Income-Related: It must be related to earning income or running a business.
Necessary: It should be necessary for your income-earning activities.
Primarily for Income: It should primarily serve income-earning purposes.
Not Capital in nature: Generally, costs related to long-term assets are not deductible.
Not Private: Personal and domestic expenses are not deductible.
Properly substantiated: You must have proper records and receipts to claim a tax deduction.
TAX AGENTS
In Australia, a tax agent is a qualified professional who provides tax-related services to individuals and businesses. Tax agents are registered with the Australian Taxation Office (ATO) and the tax agent board (TPB) and can assist clients in preparing and lodging their tax returns, ensuring compliance with tax laws, and maximising eligible deductions. A tax agent is most often a business owner, so a reminder than when you’re asking for their time and assistance, there will be a fee associated with this time. Most tax agents in Australia, like lawyers, charge for their time by the hour. At Freshwater Taxation, we charge fixed fees for all of our services, which you can view on our website.
For more information about the Australian tax system, or how to lodge your first tax return in Australia, check out our personal tax return procedure, or get in touch with our friendly team. We’d love to help!
