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Understanding The Concepts Of Income Tax In Australia

by Soft2share.com

Like all other progressive and developed countries, Australia too runs the country’s finances by charging a tax from the eligible citizens’ income. This is usually known as the income tax and requires every citizen within the taxable bracket to pay it. Australia follows a progressive tax model, which means the rate of tax increases along with the increase in income of the taxpayer. With the income tax and other taxes, the annual income of Australia in 2019-20 was AUD 552 billion. This figure constituted 27.8% of the GDP of Australia, a clear indication of the importance of timely payment of this tax to the existing government. 

However, an individual just starting a business or earning for the first time may not be habituated with the nuances and the detailed subject of tax payment. There are different guidelines on what constitutes a taxable source, and also the requirement of receipts for claiming a return. For first-time taxpayers, it is better to consult an experienced and proficient accountant Perth. They will be instrumental in learning about the different aspects of the Australian income tax. 

The Australian income tax

In Australia, tax is levied on all sorts of income, including the salary from your job, profits from your business, interests from your savings, and even the returns from investments in banks and other financial institutions. It is even applicable for valuable assets when they are sold or given away. An example of such properties may be houses or shares. 

Australian citizens are allowed to earn up to a certain amount annually without paying tax. It is known as the ‘tax-free threshold’. For Australia, this amount is AUD 18, 200. Earning above this limit for a given year will enable the person to pay the required tax to the government of Australia unless decreed otherwise by the relevant tax authorities. 

As stated earlier, Australia follows a tax system which can be termed as ‘progressive’, indicating that the persons earning more will have to pay more tax. The minimum and maximum rates of taxes are 19% and 47% respectively, charged according to the declared earnings. The scale of Australian income tax according to the declared earnings are stated below:

Amount of declared annual income (AUD)Percentage of income tax levied
18,201-3700019 cents for every AUD over 18,200.
37,001 – 90,000AUD 3,572 and 32.5 cents for every AUD 1 over AUD 37,000.
90,001 – 180,000AUD 20,797 combined with 37 cents for every AUD 1 over 90,000.
180,001 and aboveAUD 54,097 plus 45 cents for every AUD 1 over AUD 180,000.

N.B. An additional levy for Medicare at a rate of 2% of the income will be charged in addition to the appropriate tax rate. 

Relatedly, the tax rates for foreign nationals living in Australia are costlier, as foreign individuals earning up to AUD 87,000 in a year will be charged 32.5% of their income. Those earning between AUD 87,001 and AUD 180, 000 per annum will have to shell out AUD 28,275 in addition to 37% of the amount they earn over AUD 87,000. For individuals with yearly earnings over AUD 180001 would be required to submit an income tax of AUD 62,685 coupled with 45% of the money earned over AUD 180000.  

For working holiday makers, the rate of income tax stands at 15% of all income up to AUD 37,000, and then a similar rate will have to be levied as other citizens from the slab of AUD 37,001 onwards. For more details, consulting with a personal tax accountant Perth will be helpful and advisable. 

Types of taxable income

According to the guidelines of the Australian government, the amount of money generated from a business, work, and even investments will have to be assessed properly and the required tax paid. Concerning this, some of the individuals and working situations where the income tax will be applicable after the threshold limit can be specified. The avenues where the existing tax rates can be applied are given below:

  • Income from employment (this includes income and salaries, stipends, bonuses, information, peripheral benefits, lump-sum payments, and contributions from superannuation funds).
  • Payment related to government or government-related organizations (like Centrelink) – this includes but is not limited to pension for aged people, pension for disability support, allowances like Abstudy, Austudy, Jobseeker, youth allowance, Newstart, or payments to the carer. 
  • Income from investments (including bank interests).
  • Income from businesses.

Any other queries can be answered by the proficient and experienced accountant Perth of your choice.

Avenues of payment

This is an important question as the event of extra payment of income tax is not uncommon. In that case, the person will be eligible for a tax return. Let us know in detail how the taxes can be paid for different types of incomes to the Australian Taxation Office (ATO):

  • For individuals working directly for an employer, the applicable taxes will be automatically deducted and paid to the ATO. This means that you will receive the amount left from your salary after deducting the relevant taxes. 
  • For other forms of income, the individual will have to file the income tax themselves. 

The Australian taxpayers have to fill out a document annually which records all the incomes in the given year and the liability can be calculated from that document. This is known as an ‘income tax return’. If the employer has already paid enough tax on behalf of his employee (deductions from the salary), then further payment is not needed. In case of additional payment, the taxpayer is eligible for a return. 

Utilizing every avenue

The dates of tax return filing in Australia are after 30th June and no later than 31st October for each year. Listing with the ATO as a client of a tax agent can usually provide an extension. However, it is favourable to submit the return within the due date. In addition, certain costs can be claimed as tax deductions, which reduces the taxable income. To know in detail about the expenditures that can be used to claim returns during the filings, it is better to include an experienced accountant Perth during the calculations.

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