Baffled By Tax Talk? Here's What You Need To Know About Your Tax Return

The moment I had to apply for an Australian Tax File Number felt like the moment I unofficially became an adult.

Now, for the first time, I find myself thinking about something other than discounted electronics at the end of the financial year. I’m thinking about taxes.

Taxation is notorious for being a very boring subject, but when June 30 is upon us and time for calculating financial statements is almost up, it’s all anyone talks about. Accordingly, we thought we’d better break it down for those who haven’t engaged with tax talk before.

Why do we pay taxes?

Income tax is the source of the bulk of the government’s funding. It contributes to paying for the government’s projects, from funding detention centres to granting youth allowances.

That’s why you actually have a right to get annoyed when the government chooses to spend your taxes on things you might deem unnecessary.

How much do we pay?

So, start with your all of your earnings for the year. For most people, this would be mainly made up of wages (including overtime and bonuses). This money is your "assessable income".

There are some sources of income that are deducted from this, including a few government and education payments (for those who are able to claim them). What you’re then left with is your "taxable income". How much tax you pay depends on this figure.

This nifty guide will let you see exactly how your taxable income aligns with how much tax you pay (as of June 2019).

If your taxable income is between zero and $18,200, you will pay zero tax. (This is indeed cause for celebration, but if you’re not earning enough to be taxed, you’re probably not willing to shell out for a celebratory cake.)

If your taxable income is between $18,201 and $37,000, you will pay 19c tax for every dollar over $18,200.

If your taxable income is between $37,001 and $90,000, you will pay $3,572 and 32.5c for every dollar over $37,000.

If your taxable income is between $90,001 and $180,000, you will pay $20,797 and 37c for each dollar over $90,000.

If your taxable income is more than $180,001, you will pay $54,097 and 45c for each dollar over $180,000.

You may also have to pay a Medicare levy (two per cent of your taxable income); this partly funds Medicare, giving Australian residents access to health care. However, if you don’t earn a lot, you may not have to pay this levy at all, or you may have the amount reduced. (Head here for specific exemptions.)

How do we pay?

Most people don’t have to worry about the payment process, as their employer will pay taxes on their behalf by deducting the necessary sum from their wages each pay-day.

But for those of you who are self-employed, you can pay your taxes online.

All you need to do is create a MyGov account at my.gov.au (which is useful for other services as well, including Centrelink), link it to the Australian Tax Office (the people responsible for everything tax related) and follow the instructions.

You need an Australian Tax File Number to pay your taxes (and, more excitingly, to get a job or to apply for HECS). It can take up to a month to process, so apply soon if work or tertiary study is on the horizon.

Why do we get some money back (or, owe a little more) at tax time?

You may have encountered that one person who asks you to save receipts for their "tax return". But what does that actually mean? And what kind of receipts can you save?

If you pay income tax, you need to fill out a form (you can also do this online through MyGov) that allows you to account for any work-related expenses, from the laptop you bought to the accumulating cost of your public transport tickets. These are deductions.

If these expenses mean you’ve been over-taxed, you will be provided with a refund, which tax-talk-savvy people refer to as a "tax return".

Even if you don’t want to account for these expenses, there are a set of situations that mean you must lodge a tax return. (Read about them.)

For people with a complicated set of income sources (like freelancers) and an even more complicated set of work-related expenses, it’s probably best to get an accountant to deal with your tax return. Unless, that is, you’re that annoying person who’s really good at maths. Then, you won’t need to pay anyone to file your return.

While getting a refund is great, you may also find yourself in a situation where you owe tax.

Often, this is because the person in charge of calculating your tax is an egg and didn’t do it properly. However, it could also be because you didn’t tell your employer about a HECS debt or because you had an alternate source of income (like bank interest or gains from selling a property).

Make sense? You now have the knowledge required to pass for a responsible adult.

Susan Alfayadh is one of Student Edge’s student contributors. Learn more about the contributors program. 

This article was originally published in July of 2017, but has been updated with latest figures.

Photo: Fox.