If you’ve just landed a job, you probably already know you’ll need to pay tax on your income. The question is, how much will you need to pay? And how will you make the payments? Let’s break it all down, starting with a quick guide to income tax in Australia before diving into the details of PAYG withholding and how it works.
What Is Income Tax?
Income tax is a percentage you must pay to the Australian Taxation Office (ATO) once you earn over $18,200. Your employer will withhold a certain amount from your before-tax income. They’ll base this amount on what you earn. The difference you receive is your after-tax income. That’s the income you take home.
Australia has a progressive tax system, meaning the more you earn, the more tax you’ll need to pay. Your taxes are used to fund local, state, and national developments to benefit the whole of society. So, by paying income tax, you’re funding schools, the police force, the army, roads, and capital works.
What Are the Tax Rates in Australia?
The personal income tax rates for 2022-23 for Australian residents for tax purposes are:
| Taxable Income | Tax to be paid on this income |
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 19 cents for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45 cents for each $1 over $180,000 |
If you want to learn more about the tax-free threshold and what it means for your personal taxes, visit our beginner’s guide to the tax-free threshold. It’ll open in a new tab so you can continue learning about PAYG withholding first.
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What Is PAYG?
PAYG stands for Pay As You Go. Your employer will take it out of your wages incrementally to cover your tax obligations – this is known as PAYG withholding. They’ll then give you your after-tax income each pay period, which could be weekly, fortnightly, or monthly. Your employer will use the money they withheld to pay the ATO on your behalf. The tax you pay will appear on your end-of-year income statement, which your tax agent will use to claim your tax deductions.
What Are Tax Deductions?
Tax deductions are work expenses you incur throughout the year that you can claim back when you lodge your tax return. There are three things you need to remember about claiming tax deductions:
- You must have already spent the money and be out of pocket (you can’t claim expenses on things you haven’t bought yet);
- The expense must relate to the way you earn your income (you’ll get into trouble if you claim expenses that are fake or private in nature);
- You must be able to prove your expenses. So keep your receipts, bank statements, tax invoices, and any other financial records that back up an expense (the ATO can ask to see your proof for up to five years from when you lodged your tax return).
Pro Tax Tip: You can keep electronic copies of your receipts if they are clear and accurate representations of the originals. There are good apps that can help you keep track of your expenses and categorise them. The key to getting the best tax refund is to be organised.
What Can You Claim as a Tax Deduction?
Generally speaking, the types of expenses you can claim include:
- Vehicle expenses
- Travel and meals
- Self-education
- Uniforms and clothing
- Home office
- Unions fees, subscriptions, journals, licenses, certifications
- Donations
- The cost of seeing your tax accountant
Tax time is between 1 July and 31 October each year, so you’ll have four months in which to lodge your tax return. You might even have up to 15 May the following year if you book an appointment by 31 October with a tax agent and use them to lodge your tax return. Need to get a tax return sorted? Use our online booking tool to find a convenient ITP office and secure your appointment today. We’ll handle all the boring details and snag you the best refund possible.
Understanding Your Income Statement
At the end of the financial year, your employer (or employers if you have more than one job) will finalise your income statement so you can lodge your tax return. Your income statement is like your pay slip, only you get the whole year’s worth of information. It shows:
- Your year-to-date salary or wage;
- The tax withheld;
- The superannuation amounts your employer paid to you.
Pro Tax Tip: As of 1 January 2021, your employer must offer to contribute to your choice of superannuation fund, as well as offering their default fund. You can read more in our guide to superannuation for beginners.
Do You Need an Income Statement?
You will need an income statement to lodge your tax return at the end of the financial year. Your tax agent will be able to access that information on your behalf. Your accountant can also advise if your income statement is tax-ready.
It’s important to only lodge your tax return when your income statement is tax-ready. Otherwise, your tax refund could be delayed.
Pro Tax Tip: Only you, your employer, your tax agent, a nominated person (such as a family member), and the ATO should be able to access your income statement.
What Is a Tax Refund?
A tax return is the paperwork you fill out at tax time and send to the ATO. After you lodge your tax return with the ATO, you will receive your tax refund if entitled. A tax refund is the difference between what you paid in tax throughout the year and the amount you or your tax agent calculate after factoring in all eligible tax deductions and rebates.
Pro Tax Tip: Tax is complex. Thankfully, a certified accountant can help you secure a bigger tax refund than you could achieve yourself. They understand all the valid claims you can make and will ensure you get everything you’re entitled to. Even if you think your tax return is simple, there are bound to be deductions you don’t know about that could increase your refund. Don’t let this money, which you worked hard to earn, go to waste.
How to Get the Best Tax Refund
How can you maximise your tax refund and minimise the amount of tax you need to pay? Well, the best way is to claim everything you’re legally allowed to claim. You shouldn’t be out of pocket for your work expenses, and claiming everything you can is the key.
Logbooks, receipt-storing apps, and diaries are excellent ways to ensure you don’t forget what you’ve purchased. You should also log your expenses as soon as you incur them. If you forget you’ve bought something, chances are you’ll also forget to claim it a few months later.
Save and categorise your receipts straight away. Spending five minutes at the end of the day to go through your purchases and log your expenses will go a long way at tax time. Even if you’re not sure, keep it anyway. Your ITP Tax Accountant can let you know if your expenses are claimable.
Finally, the best way to ensure you’re claiming everything you can is to go to see someone who knows. A tax agent is on your side when it comes to claiming all of your expenses. They studied extensively to be able to help people and businesses avoid paying more tax than they have to, so they can help you spot any deductions you might be missing. Your tax agent will also lodge your tax return for you. This speeds up the process while ensuring there are no mistakes so everything goes smoothly.
Other Benefits of Working with an ITP Tax Agent
Perhaps most importantly, using a tax agent gives you a valuable layer of protection. Did you know that lodging your tax return is legally your responsibility? If there’s a mistake, you’re ultimately liable. However, a tax agent can give you the extra support you need to ensure things run smoothly with the ATO.
Pro Tax Tip: Are you 21 or under? ITP offers a special price for lodging your tax return. For only $79, an ITP Tax Accountant will guide you through your tax return and ensure you claim all your eligible tax deductions. We’ll then lodge your tax return with the ATO on your behalf so you won’t have to worry about a thing. You can even claim our fee on next year’s tax return. Bonus!
Our friendly, talented accountants have been helping Australian individuals and businesses for more than 50 years. Phone 1800 367 487 today for an easy, obligation-free chat with a tax accountant today.