Make it an annual habit to lodge your income tax return.
One of the first responsibilities we have and a great habit to get into in good financial management is lodging an income tax return each financial year.
Most are aware the financial year starts on July 1 and ends on June 30 of the following year.
All Australian residents are entitled to the tax-free threshold which currently makes the first $18,200 of earned income tax free. After that we are taxed accordingly to the relevant rate.
When do I need to lodge a return?
It is necessary to lodge a tax return if you are employed, contracted or operating a company or trust and earning above the tax-free threshold. Or if tax has been paid on any income. Even if the total income earned for the financial year is below the tax-free threshold.
Any additional income also needs to be declared. This may be investment income, such as interest earned on savings or rent received from an investment property. Or Centrelink payments, such as Youth Allowance, Austudy or the Age Pension. A full list of income you must declare can be found here.
If tax has been paid but overall less than $18,200 has been earned, a tax return should be lodged. In which the full amount of tax paid should be refunded.
What happens if I have earned above $18,200?
If the income for the financial year is more than $18,200 then tax is paid accordingly with your tax rate. We apply any offsets or rebates available to you that will help reduce the tax payable. These may include low income, private health insurance and spouse super contributions.
Tax can then be reduced by claiming the cost of any expenses incurred relating to that income also known as deductions. This is why getting into a habit of record keeping, such as keeping receipts or a log book is so important. Common deductions include tax agent fees for previous return, vehicle expenses, cost of tools and equipment as well as laundry and uniform expenses. Common but sometimes forgotten deductions include income protection, union fees, travel to and from courses and/or seminars, mobile phone usage and costs associated with working from a home office.
You should keep all documentation, such as receipts for items that have been claimed as a deduction for five years from the date of the lodged tax return.
What happens if I have two jobs?
If you receive more than one income at the same time, in this instance two jobs, you should only claim the tax free threshold on one job. We generally recommend claiming the tax-free threshold on the job you earn the most from. You may also want them to deduct an additional amount of tax per pay cycle to cover any unknown tax liabilities that may occur.
How do you opt to claim the tax-free threshold?
When commencing a new job or should circumstances change we usually complete a form called the Tax File Number Declaration.
On this form question eight asks, do you want to claim the tax-free threshold from this payer? If this employer is your only employer or higher income employer, cross yes. If it’s the second or lower income employer, cross no.
This also applies if the other form of income is a Centrelink allowance or pension. Be mindful that Centrelink payments generally won’t have any tax withheld. Therefore you may find that there may be tax payable when you complete your tax return.
How do I complete my tax return?
Make it an annual habit to come in and see us once you have received your Payment Summary or Group Certificate. Employers are required to issue employees with their payment summaries by the 14 July each year.
Each year we offer extended hours until the last week of August. No appointments necessary or taken during extended hours. Wait times do vary. However, we always have three or more accountants available to complete individual tax returns.
Paying tax is all a part of life, as your Accountant our role is to make sure you don’t pay any more tax than required. The rate at which tax is applied depends on the amount of taxable income earned.