New to the world of tax returns? If you’re confused to understand whether you should lodge a tax return this year, this short article will help you understand when and where you should lodge.
If you had tax withheld from any payments, such as wages, made to you during the income year.
When tax is taken out of your wages during the year, it is considered a prepayment towards your final tax liability for that financial year. However, the amount withheld from each pay is only an estimate based on your payroll information. It does not necessarily reflect your exact tax liability once all your income, deductions, rebates and offsets are taken into account.
To reconcile this, you need to lodge a tax return with the Australian Taxation Office. In the tax return you will declare all your income, claim any applicable tax deductions and offsets. The ATO will then determine your actual tax liability based on your circumstances.
If too much tax was withheld from your wages during the year, you will be entitled to a tax refund for the overpayment. Conversely, if not enough tax was withheld, you may owe additional tax. Only by lodging a tax return can these discrepancies between estimated and actual tax liability be reconciled.
If you are an Australian resident and your taxable income was MORE than the tax-free threshold of $18,200.
If you have had tax withheld from your salary or wages and you earn over $18,200, you need to lodge an Australian tax return.
The tax-free threshold works in conjunction with the tax brackets in Australia. Once your taxable income exceeds the threshold, the portions of income within each tax bracket are taxed at the corresponding rates:
- 19% on income between $18,201 and $45,000
- 32.5% on income between $45,001 and $120,000
- 37% on income between $120,001 and $180,000
- 45% on income over $180,000
So, for example, if your taxable income is $30,000:
- The first $18,200 is tax-free, due to the threshold
- The portion between $18,201 and $30,000 ($11,799) is taxed at 19%
- This means you’ll pay $2,242 in tax on the $30,000 income
If you are an Australian resident and your taxable income was LESS than the tax-free threshold of $18,200.
If you earn under $18,200 and tax has been withheld from your salary or wages, you still need to lodge an Australian tax return.
Even though you earn under the tax-free threshold of $18,200, lodging a tax return allows you to claim back any tax that has been withheld from your pay throughout the year.
The tax-free threshold of $18,200 means that you do not need to pay any tax on income up to that amount. However, if tax has still been withheld from your pay, you are entitled to claim that back by lodging a tax return.
If you are leaving Australia permanently or for more than one income year.
If you are leaving Australia permanently or for an extended period of time, you need to lodge an Australian tax return to reconcile your tax affairs before you go. Even if you have not earned enough income to normally require filing a tax return, you must file a return for your final year in Australia.
The reason for this is twofold. First, the Australian Taxation Office (ATO) requires all taxpayers leaving the country permanently to lodge a final return so they can confirm you do not have any outstanding tax debts before you depart. The ATO may withhold your passport until any tax debts are paid if you do not file a return before leaving.
The second reason is so you can claim any refunds you may be owed for that financial year. Even if your income was below the tax-free threshold, you may still be entitled to tax offsets or rebates that would result in a refund. But you can only claim these refunds by lodging a final tax return before leaving the country.
If you want to claim any tax deductions.
Tax deductions help to lower your taxable income and overall tax liability. When you make eligible purchases or incur work-related expenses, you can claim those amounts as tax deductions. Some common tax deductions include work-related travel expenses, work-related equipment and tools, self-education expenses, and donations.
When you claim a tax deduction, the amount is subtracted from your total income before calculating the tax you owe. This lowers your taxable income and therefore lowers your final tax bill.
For example, if your total income is $80,000 and you have $5,000 in eligible tax deductions, your taxable income would be $75,000. This means you would pay tax on $75,000 instead of $80,000, resulting in a lower tax liability.
So it is advisable to claim all legitimate tax deductions you are entitled to in order to minimise your tax bill for the year. However, you must ensure any deductions you claim are properly substantiated in case the Australian Taxation Office requests documentation.
If you are a liable or recipient parent under a child support assessment for the entire income year and your income was $27,063 or more.
The amount of child support you pay or receive is determined based on your income. The Child Support Agency requires information about your income to accurately calculate your child support obligations.
If your income is $27,063 or more, you are required by law to lodge a tax return. Services Australia will use information from your tax return, specifically your assessable income, to determine the amount of child support to be paid or received.
Even if your income is below $27,063, you still need to lodge a tax return if you want to claim any deductions or tax offsets that could reduce the amount of child support payable.
Failure to lodge a tax return when required may result in Services Australia estimating your income based on previous returns or other information. This could lead to an inaccurate child support assessment if your actual income differs significantly.
If you are a foreign resident with a study or training support loan, even if you have no Australian income.
If you are a foreign resident studying in Australia and you have taken out an Australian Government study loan, such as HELP, VSL or TSL liability on 1 June of the relevant financial year, you are required to lodge an Australian tax return each year and report your worldwide income.
Worldwide income is both your:
- repayment income
- foreign-sourced income while you are a foreign resident.
Even if you do not earn any income in Australia, if your total income from all sources around the world converted to Australian dollars exceeds a certain threshold, you will need to make a loan repayment. This threshold is called the minimum repayment threshold.
There are two types of repayments you may need to make:
- Compulsory repayments – If your worldwide income exceeds the minimum repayment threshold, you must make a compulsory repayment based on your income.
- Overseas levy – If your worldwide income mostly comes from overseas sources, you may need to pay an overseas levy instead of the normal compulsory repayment. The levy is a flat rate charged on your loan balance.
To calculate what you need to repay, you will need to show all your income from both Australian and overseas sources for the period that you were an Australian resident during that financial year. You report this income in your Australian individual income tax return (IITR), even though most of it may have been earned overseas.
Based on your worldwide income, the Australian Tax Office will determine if you need to make compulsory repayments or pay the overseas levy and will notify you of the amount you need to repay for that financial year.
If you are a foreign resident and you earned more than $1 in Australia during the income year, unless your only Australian-sourced income was interest, dividends, or royalties and you paid the correct amount of non-resident withholding tax.
If you live in another country but work in Australia, you need to report any income you earn from Australian sources on your Australian tax return.
This Australian-sourced income includes:
- Salary or wages from your Australian employer – This is employment income.
- Rent from properties you own in Australia – This is rental income.
- Australian government pensions – Unless a tax exemption applies under Australian tax law or an international tax treaty.
- Profits from selling Australian assets like shares, property – This is capital gains income.
But in general, you do not need to report any income you earn from sources outside of Australia on your Australian tax return. Income from your home country or other foreign sources is considered foreign income, and you would report that on the tax return in the country where you earned that income.
So in summary, when you fill out your Australian tax return as a foreign resident, you only report income from:
- Your Australian employment
- Australian rental properties
- Australian investments and assets
You do not report foreign income like salaries, rent, investments from your home country or other countries.
If you are a working holiday maker (417 or 462 visa holder) and your taxable income for the year is less than $45,001.
Working holiday makers on a 417 or 462 visa are required to lodge an Australian tax return each year, regardless of how much income they earn. There is no minimum income threshold that exempts working holiday makers from lodging a return.
The Australian Taxation Office requires all taxpayers, including temporary residents like working holiday makers, to lodge a tax return so they can correctly assess your tax liability. Even if your income is below the tax-free threshold of $18,200, you still need to lodge a nil assessment return to confirm this with the ATO.
Lodging a return also ensures any tax that has been withheld from your income during the year is correctly accounted for. You may be eligible for a refund if too much tax was withheld. Not lodging a return may result in you forfeiting.
We hope the information provided has clarified the need to lodge an Australian tax return for your situation. Finalizing your tax affairs through a return ensures the right amount of tax is paid based on your specific circumstances. If you have any other questions about your tax requirements, an ITP Tax Accountant will be happy to help. Our tax agents can review your details, answer your questions, and ensure you meet your obligations properly. Don’t hesitate to contact us – we’re here to assist you in getting your tax affairs in order. Phone 1800 376 487 or book online.