It’s that time of the year again when Australians need to gear up for tax season. As responsible citizens, it’s important to fulfill our legal obligations by lodging your 2023 tax return.
Preparing for tax season can feel overwhelming, but with the right knowledge and guidance, you can approach it confidently and efficiently. Here are our hot tips to maximize deductions, optimize your tax refund, and ensure compliance with the latest tax regulations.
Remember, staying informed and proactive throughout the process will not only help you fulfill your tax obligations but also potentially put some extra money back in your pocket. So, let’s dive in and make this tax season a seamless and rewarding experience- especially for your wallet!
Your Taxable Income
The income tax year for the current period extends from 1 July 2022 to 30 June 2023, and the deadline for lodging your tax return is 31 October 2023.
When it comes to lodging your income tax return, there are a few standard items you’ll need to gather:
Income Statement (PAYG): Your employer will submit this information to the ATO on your behalf, detailing your income and tax withheld.
Interest: Your bank should provide you with a receipt, but the ATO’s prefilling record will also include information about any interest earned.
Your spouse’s income: If applicable, you’ll need to include your spouse’s income on your tax return.
Expenses (deductions) related to generating your income: It’s essential to gather all relevant documentation supporting your deductions for work-related expenses. This may include receipts, invoices, or other evidence of expenses incurred while earning income.
To streamline the process, the Australian Taxation Office (ATO) has made significant advancements in its technology. It receives information from multiple sources and conducts cross-checks to ensure accuracy. You’ll need to be honest and precise when providing details on your income tax return.
Throughout the year, the ATO collects various data pertaining to your employment, bank accounts, investments (including cryptocurrency and rental properties), and more. Some of this information is then conveniently “prefilled” on your income tax return, simplifying the calculation of your tax deductions.
You’ll need to accurately report all sources of income you receive, including but not limited to salary and wages, government payments, rental income, interest, dividends, capital gains, and any other forms of income.
Pro Tax Tip: Although your tax agent will be able to see this information for you in your appointment, the ATO doesn’t automatically fill out any tax deductions to minimize your tax obligations.
Your Income Statement
The PAYG tax system is designed to simplify the process for both employers and employees. It enables employers to adjust the tax withheld from each pay, ensuring that a portion of your expected tax liability is covered throughout the year. This helps prevent a large tax bill at year-end and makes meeting your tax obligations more manageable by spreading the payments over time.
Your Income Statement, formerly known as a PAYG Payment Summary or group certificate, is an important annual record of your income earned from an employer during the financial year. As an Australian taxpayer, your employer should provide you with a payment summary that outlines your total earnings for the year and any withholdings made from those payments. Your PAYG summary is your Income Statement that will generally be pre-filled.
Most people won’t have to do anything to see this information, but you should be aware of it as it’s a legal statement telling the ATO how much you’ve earned.
How Much Tax Do You Have To Pay? The Australian Tax system works on a progressive scale, meaning the more you earn, the more tax you have to pay. The rates haven’t changes since the last financial year, and are as follows:
|Taxable Income||Payable Tax|
|$0 to $18,200||Nil|
|$18,201 to $45,000||19c for each $1 over $18,200|
|$45,001 to $120,000||$5,092 plus 32.5c for each $1 over $45,000|
|$120,001 to $180,000||$29,467 plus 37c for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45c for each $1 over $180,000|
The Medicare levy of 2% is also added on top of the marginal tax rate that you are required to pay. For example, any income you earn between $45,001 to $120,000 would be taxed at 32.5% tax plus 2% Medicare levy or in other words 34.5% altogether.
When it comes to tax deductions, there are several main categories that individuals can explore to potentially reduce your taxable income:
Work-related Expenses: This category includes expenses directly related to your employment or business activities. It can cover items such as uniforms, tools, equipment, work-related travel, and professional development expenses.
Self-Education Expenses: If you undertake education or training courses to enhance your skills and knowledge in your current profession, you may be eligible to claim deductions for associated expenses such as tuition fees, textbooks, and stationery.
Charitable Donations: Donations made to registered charities and certain other deductible gift recipients (DGRs) can be claimed as deductions. It’s important to keep receipts or documentation for these donations.
Home Office Expenses: If you work from home and have a dedicated workspace, you may be able to claim deductions for expenses like a portion of your electricity, stationery, electronic equipment, phone and internet costs. Remember to keep accurate records and ensure the expenses are genuinely work-related.
Vehicle Expenses: If you use your vehicle for work-related purposes, you may be able to claim deductions for expenses such as fuel, maintenance and repairs, insurance, and depreciation. It’s important to maintain a logbook and accurately track your business-related travel.
Rental Property Expenses: If you own an investment property, there are various deductions you can claim, including interest on loans, property management fees, repairs and maintenance costs, council rates, and insurance premiums.
Income Protection Insurance: Premiums paid for income protection insurance, which provides coverage in the event of illness or injury affecting your ability to work, are generally tax-deductible.
How Much Tax Will You Pay?
This is the ultimate question we’re asked in every session. The answer is that every individual’s tax situation is unique, influenced by various factors that can affect the final tax bill or potential refund. Tax credits, low-income offsets, rental properties, cryptocurrency holdings, deductions, and even Capital Gains Tax (CGT) from asset sales like shares or real estate will have an impact on the final result.
The tax free threshold in Australia is $18,200. If your total income is this amount or below, any tax you’ve paid throughout the year will be returned to you.
Every Australian with a taxable income over $24,276 will be obligated to pay the Medicare Levy. The Medicare Levy plays a vital role in supporting Australia’s public health system by providing necessary funding. In general, taxpayers contribute to this levy at a rate of 2% based on their taxable income. However, certain individuals may qualify for a reduction or exemption depending on their unique circumstances. Factors such as low income or specific medical conditions can warrant eligibility for these benefits.
The Medicare Levy Surcharge is another levy that is payable by certain individuals that have no or insufficient Private hospital cover and their income exceeds the Medicare levy surcharge threshold. The surcharge is payable at a rate of either 1%, 1.25% or 1.5% and is levied on your taxable income, reportable fringe benefits and trust income. You will not pay the MLS if your income is less than the base income threshold, which is:
- $90,000 for singles
- $180,000 (plus $1,500 for each dependent child after the first one) for families.
- End of the financial year: 30 June 2023
- Tax return lodgment deadline: 31 October 2023
- Deadline for tax agent lodgment: If you use a tax agent, the deadline may be later than 31 October, but you must be registered with your tax agent by 31 October 2023.
If you miss the tax return lodgment deadline, you may receive a fine or penalty. If you have a legitimate reason for missing the deadline or if you’re employing a tax agent, you may be granted an extension. Claiming tax deductions can be complex, but one thing is for sure – if you don’t claim what you’re legally entitled to, you will pay more tax than you have to. Even better, the fees you pay to organize your tax affairs are tax deductible and can be claimed in your next year’s tax return.