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How Tax works in Australia

Income tax is the major source of revenue in the Australian tax system. It consists of three main types:

  • Personal Wages & Investments
  • Business Profits
  • Capital gain on Assets.

Income tax is calculated on an person’s taxable income. It is paid on almost all types of earnings: wages from your employment, profit from business enterprise and earnings like rent and interest from investments.  Income tax can also apply to the profit on the disposal of assets such as when a house or shares are sold.

Australia’s tax system uses progressive rates.  This means that the higher your taxable income, the higher the Tax you have to pay.

The first $18,200 earned in any fiscal year is not taxable. This is often called the tax-free threshold, and after which, the tax rates kick in.

Tax rates for residents in 2020/21 include (Note: these rates do not include the Medicare levy):

Taxable income $ Tax payable $
0 – 18,200 Nil
18,201 – 45,000 Nil + 19% of excess over 18,200
45,001 – 120,000 5,092 + 32.5% of excess over 45,000
120,001 – 180,000 29,467 + 37% of excess over 120,000
180,001+ 51,667 + 45% of excess over $180,000
   

Lodging your tax return can be done after 30th June, and the absolute deadline for self-lodgement is 31st October. It can be best to use a tax agent, to be sure that everything is returned correctly and they will also maximise your refund.

For retired taxpayers with access to super funds, you should be aware of your taxation obligations. Taxpayers at different ages have varying Taxation obligations with Superannuation.

Deductions

Tax deductions are costs that you have incurred during the financial year for income-producing purposes. Tax deductions reduce taxable income and are often the reason why people get a tax refund.

If you paid for something to allow you to do your job, you may be entitled to claim that cost as a deduction—for example, travel expenses to seminars or the cost to purchase uniforms.  In addition, if you use a laptop, tablet desktop computer or mobile phone for work purposes, you may be able to claim a Tax deduction.

Below are a list of tax guides to download to help you understand tax deductions:

Remember only claim your entitlements. And expenses that are private in nature or reimbursed by your work are not deductible. Claiming deductions, you’re not entitled will lead to fines and a worrying audit by the ATO.

Material on this website is general in nature and does not take into account your particular circumstances. Before you make any financial decision based on this advice, you should consider, with an adviser, whether it is appropriate to your individual financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Every effort has been made to check the accuracy of the information contained on this page and on this website, Accountants 2 Business, its officers, representatives, employees, and agents disclaim all liability, for any mistake or omission contained in this website for any loss or damage incurred by anyone relying on the information.

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