How do tax returns work?

5 minute read

Claire, our Financial Best Friend(FBF), had to lodge a tax return. Because she had tax taken out of her pay during the year and had earned over $18,200 during the financial year (1 July to 30 June). As always, she did some homework on tax and tax returns, here she shares with you what she learnt.

Income tax in Australia, is applied to an individual’s taxable income and is paid on all forms of income. This includes salary or wages from your job, profits from business and returns from investments. Income tax can also apply to assets such as when a house or shares are sold.

In Australia there are three levels of government – Australian, state and territory, and local. Each has the right to collect taxes. The Australian Government collects the most revenue. On average, each year more than 80% of tax revenue comes from taxes such as income tax, the Medicare levy, the goods and services tax (GST), company tax, and excise duty.

  • State or territory governments annually collect approximately 16% of total tax revenue from taxes such as payroll tax, stamp duty and land tax.
  • Local governments in the same period collect about 3% of total tax revenue, largely from rates charged on the owners of property.
  • GST, which is spent by the states and territories, is collected on their behalf by the Australian Government.

Australia has a progressive tax system, which means that the higher your income, the more tax you pay.

Generally, you can earn up to $18,200 in a financial year and not pay tax from your income. This is known as the tax-free threshold and after which, the tax rates kick in.

If you’re lodging your own tax return it is due by 31 October.

When you lodge a tax return you include how much money you earn (income) and any expenses you can claim as a deduction. This information allows the Australian Tax Office, (ATO) to check how much tax you should have paid. If you have paid more tax than you need to, the ATO will refund the extra amount to you (this is called a tax refund). The good news is that you can generally receive your refund within 2 weeks. If you have not paid enough then you may receive a tax bill.

Claire’s Tax Lodgement Tips

Lodging with myTax is a quick, easy and safe way to lodge your tax return online. To use myTax, you first need to have a myGov account and link your account to the ATO. To make the process easier, the ATO has a special linking code to help you with your proof of identity when linking to the ATO from myGov.

To obtain this unique linking code you will need to call the ATO on 13 28 61. When you call, make sure you have your identification information ready, such as your tax file number (TFN), driver's licence or Medicare card.

Claire recommends you link to the ATO before tax time to ensure you receive all communications and there are no delays in lodging your tax return. Once linked, you can access myTax simply by clicking through to the ATO in myGov – click ‘Prepare’ to get started.

In order to ensure the lodgement process is as smooth as possible, make sure you have all your important documents together before lodging online or with your agent. Filing away important receipts, invoices and documents throughout the year will save you a lot of time when it comes to completing your return.

You must include all the income you receive during the financial year. That means money you have earned from all your jobs, including:

  • full time
  • part time
  • casual or odd jobs
  • self-employment
  • cash jobs.

You must also include money you earned in other ways, including:

  • interest from bank accounts
  • government payments (e.g. from Centrelink)
  • owning a rental property
  • overseas investments
  • share market dividends.

No matter how you earn it, remember to include it in your tax return.

It’s also important to ensure all your details are up to date. If you’ve moved or changed your name, these details need to be updated with the ATO.

If you're retired or have access to your super fund, it is important that you are fully aware of your tax obligations. People of different ages have different levels of obligations when it comes to tax on superannuation withdrawals.

Call GuildSuper, on 1300 361 477 if you have questions about your tax and super.