It’s hard to believe that it’s June already.
And we all know what that means: it’s nearly tax time!
While the idea might not exactly fill you with joy (though it does at our end!), filing your taxes is an important part of your responsibilities as a resident in Australia.
Determining whether you need to file a tax return should be easy – is your income underneath the taxable threshold? You’re in the clear. Is it above? You’ll need to cough up.
Of course, affairs of taxation are rarely that straightforward!
You’d be surprised how many frantic phone calls our tax accountants in Melbourne receive from panicked individuals upon finding out that yes, they need to pay tax too.
Needless to say, you don’t want to be one of these people!
With tax time so close, we suppose we may as well start with the burning question: do you need to file a tax return?
Our tax accountants explain income tax
As it stands, individuals who fall under the tax-free threshold needn’t file a tax return.
Currently, the threshold is set to $18,200 a year. This is the equivalent to:
- $350 a week
- $700 a fortnight
- $1,517 a month
What you mightn’t realise is that everybody qualifies this tax-free threshold – many without even realising it.
That’s because the ATO operates on a progressive tax system, where income in each bracket is taxed at that bracket’s rate.
It’s a bit hard to explain, so here’s an example.
Under the current system, the tax brackets are as follows:
|0 – $18,200||0%|
|$18,201 – $37,000||19% earnings over $18,200|
|$37,001 – $90,000||$3,572 plus 32.5% earnings over $37,00|
|$90,001 – $180,000||$20,797 plus 37% for earnings over $90,000|
|$180,001 and ove||$54,097 plus 45% for earnings over $180,000|
Say you earn $80,000 a year. The first $18,200 is 100% tax-free – you get to enjoy all that money, regardless of how much you earn.
The next tax bracket comes with a 19% rate. This 19% only applies to any earnings between $18,200 and $37,000 – the first $18,200 remains untaxed.
The last bracket you fall into is the $37,001 – $90,000 one. Again, only earnings above $37,000 are taxed at 32.5% rate, with money that falls into lower brackets being taxed at those lower rates.
It can be hard to figure out what’s what when it comes to your personal income tax. If you’re confused, we suggest getting in touch with a tax accountant in Melbourne this tax season.
Will I need to file a tax return even if I don’t pay income tax?
So your income falls under the tax-free threshold – that should settle things, right?
Unfortunately, things aren’t always that simple!
Even if your taxable income doesn’t cross the tax-free threshold, there are still several instances where you may still need to file a tax return anyway.
Tax was deducted from payments made to you
Say you work part-time, and your annual salary falls under $18,200.
If your pay packets had tax deducted from them, you may have to file a tax return regardless!
That’s because your employer will have deducted tax from your pay on your behalf – tax that you theoretically shouldn’t have to pay.
In order to get this money back, you’ll need to file a tax return.
Note that this only applies to payments with tax already deducted. Other payments such as tips or presents are exempt from this, as are cash-in-hand jobs (usually).
You’re a foreign resident
While locals needn’t worry if they fall below the tax-free threshold, foreign residents aren’t quite so lucky.
Foreign residents who earn any income in Australia will be required to pay tax on their income. There’s no tax-free threshold for foreign nationals – hence, they will have to file a tax return.
Additionally, Australia also has tax treaties with certain countries – these may entitle you to certain deductions or other benefits.
Of course, you’ll need a tax return to claim these!
You’re leaving Australia for more than a year
According to the ATO, those leaving Australia with the intent of living overseas for an extended period (or permanently) are saddled with a unique tax-free threshold.
Here’s how the maths looks:
Your tax threshold = $13,464 + (394.67 x the number of months you were an Australian resident for tax purposes)
When we say “months”, we refer specifically to months in the current financial year – it also includes the month of departure.
It’s also worth noting that the new threshold caps out at $18,200, so you can think twice about using this to increase your tax-free income!
Certain tax deductions require it
Say you qualify for travel deductions.
While the ATO is very good at tracking people’s incomes, it isn’t all-seeing – it won’t know if you had to drive from site to site as part of your job.
That’s why you need to tell them – and the way to do that is with a tax return.
In order to get the travel deductions for any petrol you may have used or tickets you may have purchased, you’ll have to keep receipts on-hand and maintain a logbook.
Confused? Our tax accountants in Melbourne can help!
For most people, the tax system is confusing – we understand.
Our tax accountants in Melbourne spend each day figuring out what’s taxable, what can be deducted, and how much you owe.
If your tax affairs are too complex or difficult for you to handle, Bruce Edmunds & Associates can help.
Our mission is to make tax as simple as possible for you. And it’s one that we’ve been carrying out with excellence, since we were established more than 50 years ago, in 1966.
We don’t stop there, however – tax is just one service we provide our clients. We also provide valuable advice regarding:
- Financial planning
- Tax wealth accounting
- Succession planning
- Superannuation management
- Estate planning
With tax time so close, there’s never been a better time to talk to a professional!