Many people across Australia, at some time or other, may not be earning an income. Perhaps you’ve taken time off to have a baby. Perhaps you’ve lost your job. Maybe you’ve taken some time out to go travelling, but whatever the reason you still might have to lodge at tax return at the end of the financial year.
Lodging your tax return, even if you have zero income to declare, may offer many benefits that just might surprise you.
What Is Deemed As Taxable Income?
The ATO deems taxable income as all of the money you earn, not just through salary, and might come from bank interest, shares, investments, rent if you have a rental property, or side-hustles.
Taxable income is your gross income minus allowable deductions. It’s the income you have to pay tax on. It includes income from:
- wages and salaries
- Foreign income
- a business
- investments
- bank interest
- income received from shares
- income you have received as rent from a rental property
- reportable fringe benefits
- reportable superannuation contributions
- profits made from property sales
- any taxable payments you get from Centrelink
- any taxable payments you get from the Department of Veterans’ Affairs
- JobKeeper Payment from your employer.
Taxable lump sum payments also count in your taxable income. These may include:
- taxable superannuation death benefits
- taxable compensation payments
- taxable insurance payouts
- superannuation that is released early.
Tax-Free Threshold
The Australian Taxation Office (ATO) collects tax from working Australians each financial year. This money is in turn returns to the public through services and public works. Australia has a progressive tax system, meaning that Australians are taxed based on the level of their income. The more you earn, the higher the percentage of income tax you’ll be obligated to pay. There are different rates for Australian residents, foreign residents, children and working holiday makers.
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Residents
These rates apply to individuals who are Australian residents for tax purposes.
Resident tax rates 2020–21
| Taxable Income | Tax On This Income |
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 19c for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092plus 32.5c for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37c for each $1 over $90,000 |
| $180,001 and over | $51,667 plus 45c for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%.
Foreign residents
These rates apply to individuals who are foreign residents for tax purposes.
Foreign resident tax rates 2020–21
| Taxable Income | Tax On This Income |
| 0 – $120,000 | 32.5c for each $1 |
| $120,001 – $180,000 | $39,000 plus 37c for each $1 over $120,000 |
| $180,001 and over | $61,200 plus 45c for each $1 over $180,000 |
Children
If you are under the age of 18, and receive unearned income (for example, investment income), special rates apply. If you’re under 18, some of your income may be taxed at a higher rate than an adult and depends on if you’re working full time, have a disability, are entitled to a double orphan pension or receive Centrelink payments. You’ll need to be recorded an as excepted person to receive a lower tax rate. This rule was introduced to stop adults from diverting income into their children’s name.
Working Holiday Makers
If you are a working holiday maker, you’ll need a 417 Working Holiday or 462 Work and Holiday visa. These rates apply regardless of residency for tax purposes.
Working holiday maker tax rates 2020-21
| Taxable Income | Tax On This Income |
| $0 – $45,000 | 15c for each $1 |
| $45,001 – $120,000 | $6,750 plus 32.5c for each $1 over $45,000 |
| $120,001 – $180,000 | $31,125 plus 37c for each $1 over $120,000 |
| $180,001 and over | $53,325 plus 45c for each $1 over $180,000 |
Non-Lodgement Advice
If you earn less than the tax-free threshold, you generally won’t pay tax. You won’t have to lodge a tax return, but you may be entitled to receive back to tax you may have paid. You’ll need to lodge a tax return to receive that money. Even if you don’t lodge a tax return, you must send the ATO a ‘non-lodgement advice’ if you have earned less than $18,200 in the past financial year and you had no tax withheld from that income.
A non-lodgement advice form is sent to the ATO when you won’t be lodging a tax return and ensures they don’t mark you as having an outstanding tax return. This is important, as they ATO can issue fines and penalties if you don’t lodge your tax return. An ITP Tax Accountant can help you work out if you need to lodge a tax return or submit a non-lodgement advice form to the ATO.
Lodgement a non-lodgement advice ensures that if you receive government payments, such as Family Tax Benefit (FBT) and the Child Care Subsidy (CCS) and other tax offsets you may be entitled to. If you have a partner, you’ll need to supply their income information as well.
It’s important to update your activity details as it will affect the withholding percentage and family income estimate you’re entitled to.
Some payments you receive are not taxable, and include:
- Family Tax Benefit
- The $750 Economic Support Payment
- Child Care Subsidy
- Additional Child Care Subsidy
- Carer Allowance
- Veteran’s Affairs pensions
- Disability support pension
You may get a payment from a state government. If you do, you may need to include it in your adjustable taxable income. If you’re unsure if you need to, contact the agency that paid you.
Making A Loss
If you’ve made a loss for the year, your taxable income will be deemed as Nil. This happens when your allowable deductions are more than your gross income. A return may need to be lodged so that the loss can be carried forward to the next year’s tax return to offset future income.
You may reduce the amount of tax you pay through claiming tax deductions. There are a range of tax deductions that can be made for expenses directly related to earning your income. An ITP Tax Accountant will help you maximise your tax deductions and lower the overall tax you’re obligated to pay.
You May Still Need To Lodge A Tax Return
Even if you’ve earned less than the tax free threshold of $18,200 and paid no tax on your income throughout the year you may still need to lodge your tax return if you:
- Are entitled to the private health insurance rebate
- Have a reportable fringe benefit amount on your PAYG summary
- Have a reportable employer superannuation contribution on your PAYG summary
- Have made a loss or can claim a loss made in a previous year
- You had foreign exempt employment income plus $1 of another source of income and you were an Australian resident for taxation purposes.
When Should You File Your Tax Return?
You should lodge your tax return between 1 July and 31 October each year. You may have up until 15 May if you register with a tax agent before 31 October. An ITP Tax Accountant will help you prepare, make all of your eligible claims and lodge your tax return so that you remain fully compliant with the Australian Taxation System. ITP The Income Tax Professionals have helped Australian individuals and businesses for 50+ years. Speak with an ITP Tax Accountant and see how we can help you today.