Come tax time, it’s time to sort through those income statements, log onto your employment portals and add up your income so you can make those all important claims. The more tax deductions you claim, the more of a tax refund will receive. But did you know that you need to declare more than just your wage or salary you receive from your employer? If you don’t declare all of your income streams, you could be missing out on claiming all your eligible deductions or worse – land yourself in hot water with the ATO.
So, what are all of your income streams the ATO will want you to declare?
The most common form of income will be from your wage or salary from working. You may be paid cash in hand, or directly into your nominated bank account. Income from your job may be classified as full time, part time or casual.
Salary and wages include:
- Your normal weekly, fortnightly or monthly pay
- JobKeeper or payments made as a result of Covid-19
- Commissions you may have earned
- Bonuses your employer may have paid to you
- Parental leave pay
- Dad-and-partner pay
- Payment made from an income protection policy, an accident or sickness insurance policy or a worker’s compensation scheme
- Any pay or allowances for continuous full time payments in the Australian Navy, Army or Air Force Reserve
- Foreign employment income
Some employers pay their staff allowances of certain kinds. These could be separate payments made to you that don’t form a part of your core wage or salary. These could be payments for car, travel, clothing and laundry. You may receive extra payments because of different working conditions, such as danger, height, dirt or hard lying. You may have been paid to do a first aid certificate or be a safety officer for your workplace. Last year and this year your employer may have paid you extra allowances due to Covid-19. Other allowances that may be paid to you are tips, gratuities and payments for your services. Consultation fees, payments you may have received for voluntary payments or jury attendance fees.
Lump Sum Payments
Any lump sum payments you have received form a part of your assessable income, even if they are one off payments made to you. You may have received a lump sum payment if you left a job and were paid an Employment Termination Payment (EFT), redundancy or early retirement scheme payment that exceeds the tax-free limit.
Other lump sums include unused annual leave, long service leave or special leave you may have been entitled to if you’ve left your job. If you’re owed back pay, or money in arrears, you will also need to include it in your tax return.
If you’ve received fringe benefits on any kind, you’ll also need to report them. You won’t pay tax on these items, but they may be used to work out if you’re eligible for tax offsets or other government benefits.
Super Pensions And Annuities
Super pensions and annuities are regular payments made to you and are considered an income stream. These types of pensions are not considered to be a government paid aged pension. Super pensions may be paid by an Australia super fund, life assurance company or retirement savings account.
Other pensions paid to you may be from a fund established for the benefit of the Commonwealth, state or territory employees and their dependents, or from a death benefit.
Pro Tax Tip: There will be a taxed, untaxed and tax-free element of a pension paid to you from a super fund and is dependent on your age and the type of income stream you receive.
Annuities might be paid to you which form regular payments from an insurance fund. Most annuities also have a taxable and tax-free component.
Government Payments And Pensions
There are a range of government pensions that may be paid to you. Some pensions are tax free, but will still need to be declared in your income tax return as there may be other government payments and tax offsets you could be entitled to. These pensions include:
- Aged pension
- Carer payments
- JobSeeker payments
- Youth allowance
- Defence force income support allowance
- Veteran payments
- Invalidity service pension
- Disability support pension
- Income support supplement
- Sickness allowance
- Parenting payments
- Disaster recovery allowance
Investments are easily overlooked as an income stream as most as received as passive income. These types of income are from bank interest, dividends, rent, managed investment trusts, capital gains.
Pro Tax Tip: You can claim a deduction for expenses you incur in earning interest, dividends or other investment income.
Business, Partnership And Trust Income
Any money you earn from a business is income and you’ll need to declare it when you lodge you tax return. Whether you’re a sole trader, company, partnership or trust, anything you earn is taxable income. There are a range of tax deductions that can be claimed for each business structure. It’s best to speak with a tax agent to see which structure suits you best and which will reap you the best tax deductions.
As an Australian resident for tax purposes, you will be taxed on your worldwide income. Foreign income you’ve earned through pensions and annuities, business activities, employment and personal services, assets and investments or capital gains on overseas assets will need to be declared.
Pro Tax Tip: To avoid being double taxed on your foreign income, Australia has a system of credits and exemptions with over 40 countries, which include major trade and investment partners.
The list goes on! Other income you may have received includes compensation and insurance payments, prizes and awards, income from personal services, ATO interest on remissions and recoupments. You will also need to declare earnings you receive from crowdfunding, the sharing economy, personal services and rental income.
Pro Tax Tip: You won’t need to include payments made to you under an income protection, sickness or accident insurance policy if tax has already been withheld for you or if you’ve already included them on your tax return.
Income Not Taxable
There are income streams you may have been paid that are not taxable, but will still need to be declared. This is income from lottery winnings and other prizes, small gifts or birthday presents, some government payments, child support, the tax-free portion of your redundancy payment and any government super co-contributions.
Now that you’ve listed your income streams, you’re entitled to reduce the amount of tax you pay. This is done through tax deductions, tax offsets and salary sacrifice.
Tax deductions reduce your taxable income before the tax you’ll need to pay is calculated. There is a large range of tax deductions that can be subtracted from your total income. Generally, there are work-related expenses, self-education expenses, donations and the cost of managing your tax affairs. A good Tax Accountant will be able to find many tax deductions for you if you don’t know them all.
You might be entitled to a tax offset. This is money taken away from your income after tax has been calculated. Common tax offsets include low-income and middle-income earners, taxpayers with an invalid relative, pensioners and senior Australians and the taxable portion of a superannuation income stream.
You might also opt to package your salary, which means that you may receive less salary in exchange for superannuation or car payments.
Everyone’s situation is different and tax can be complex. A Tax Accountant will help manage your tax affairs and will help you lower your overall taxable income so you pay less tax. The difference could save you hundreds, if not thousands of dollars.