How Tax In Australia Works: All Your Questions, Answered by the ATO

We literally sent your tax questions to the people who do the taxing.

This post is written in conjunction with the Australian Taxation Office.

Around this time of year, we reflect on the financial year that was, and eagerly send in our tax returns hoping for a satisfying lump sum refund from the government.

But many of us do so without fully understanding what tax is and how it works. Even if you know the basics, there are likely other questions you’ve always wanted answered, but were too afraid to ask.

Well, have no fear! We collected actual queries from Student Edge members and passed them along to the Australian Taxation Office (ATO), who answered them accordingly. We can’t always say this of our articles, but by the time you finish reading this piece, we guarantee you’ll know more than when you started.

So, what are you waiting for? The answers to life’s (taxation-related) problems are at your fingertips!

All answers below come direct from the ATO.

Q: "When do I have to start paying tax?" (Phoebe from SA)

A: The first $18,200 you earn in a financial year is 'tax-free'. Find out more about the tax-free threshold and whether you need to lodge a tax return.

Q: "What dictates how much the population gets taxed? How do tax brackets work?" (Rechelle from QLD & Behesta from SA)

A: The federal government sets income tax rates. The rate of tax you pay increases as you earn more income. If you want to know how much tax your boss should be taking out each pay, you can use the ATO’s Tax withheld calculator.

Q: "When can you start getting tax back?" (Courtney from ACT)

A: When you start a job, your employer may be required to take tax out of your pay. When you lodge your tax return you’ll be refunded any tax you were not required to pay.

Q: "How do you file a tax return?" (Lucas from VIC)

A: Lodging online with myTax is the quick, easy, safe and secure way for you to prepare and lodge your own tax return. You can also use a registered tax agent to prepare and lodge your tax return for you. Registered tax agents are the only people allowed to charge a fee to prepare and lodge your tax return.

Q: "How do I know what I can claim? And how do I claim it?" (Sharna from NSW)

A: In your tax return you can claim deductions for some expenses that directly relate to earning your income. To claim a work-related deduction:

• you must have spent the money yourself and weren't reimbursed by your work
• it must directly relate to earning your income
• you must have a record to prove it.

You can find out more at ato.gov.au/deductions

Q: "What is the most efficient way to reduce tax?" (Steven from NSW)

A: The income tax you pay is based on your how much income you earn. So, the higher your income, the higher the percentage of tax you will pay. The main way to reduce tax at tax time is to claim eligible work-related deductions. Make sure you spent the money yourself and weren’t reimbursed for it, it relates directly to your employment, and you have the records to prove it. You can find out more about what you can and can’t claim at ato.gov.au/deductions

Q: "Do I need a TFN if I’m not earning enough to pay tax?" (Nathan from WA)

A: Yes, when you start your job you should give your boss your Tax File Number (TFN); otherwise you’ll have more tax withheld from what you earn. The good news is that you only have to apply for a TFN once. Find out how to get one here.

Q: "How does a HECS debt affect our tax? How much did they lower the income bracket to pay back study debt?" (Juliana from NSW)

A: The Higher Education Loan Program (HELP, formerly referred to as HECS) is one way the federal government provides financial assistance to students. Let your boss know via a TFN declaration or Withholding declaration form if you have a study or training loan (including a HELP loan), regardless of how much you’re earning. This way extra tax will be taken out each pay to cover you in case a compulsory repayment is raised when you lodge your tax return, and you’ll avoid a tax debt at the end of the financial year.

Study and training loan repayment thresholds and rates are updated every year by the Department of Education. The minimum repayment threshold for 2019 – 20 is $45,881.This means that when you have scored your dream job and are lucky enough to be earning over $45,881 you will have to start repaying your study or training loan. Remember, if you take out a study or training loan, like any other loan, you have to pay it back. In addition to compulsory repayments, you may also wish to make voluntary repayments to pay off the loan sooner. Find out more information about study and training support loans at ato.gov.au/getloaninfo

Q: "Do I have to submit a tax statement even if I just had a casual summer job and didn’t earn up to the threshold?" (Zoe from NSW)

A: Whether or not you need to lodge a tax return at the end of the financial year depends on a number of things such as age, income and if you had any tax withheld from your pay. The ATO has a tool you can use to work out if you need to lodge a tax return. Check it out now so you’re prepared at tax time!

Q: "Can I be charged tax even when my annual income is under the tax-free threshold?" (Danielle from TAS)

A: If you haven’t given your boss your TFN or claimed the tax-free threshold, your employer will be required to take tax out of your pay. When you lodge your tax return you’ll be refunded any tax you were not required to pay. Make sure you tick the appropriate boxes on the TFN declaration to ensure you are taxed correctly.

Q: "Is it true you’re better off paying a tax agent and reclaiming that fee back next financial year?" (Lisa from NSW)

A: You can claim a deduction for expenses relating to a registered tax agent preparing and lodging your tax return. However if you have simple tax affairs it’s really easy to lodge online using MyTax. You can find out more about how to lodge at ato.gov.au/lodgemyreturn

Q: "Is there a tax on everything nowadays?" (Jonathan from NSW)

In Australia, everyone has a responsibility to pay tax. Businesses pay tax on their company profits, individuals pay a Goods & Services Tax (GST) on some items they buy (but not all, some things are exempt!), and individuals who earn an income pay income tax. Taxes support all Australians. Taxes fund emergency services, healthcare, schools, roads and public facilities such as sports grounds and parks so it makes sense that we all contribute! Check out this video that shows the value of tax in the community.

Our mates at the ATO host an annual competition called "Tax, Super + You", in which students from Years 7 – 12 can win cash money prizes by flexing their creative skills. Taking part in this competition will not only give you an insight into the value of tax and super, but you also have the chance to win a share of over $6,000 in prizes! Entries close 23 August 2019. Find out more!

Header Image: iStock.com/LPETTET & iStock.com/Gunay Aliyeva