All your FAQs about tax!
When you find yourself stepping into the world of ‘adulting’ it’s never long before you need to ask THAT question: ‘How do I do my tax return?’
More often than not, the jumble of answers you wade through makes you reach for the ‘Too hard” basket and put it off for a bit longer. Unfortunately, that’s never a good idea.
The truth is, tax really isn’t scary. In fact, if you do it right, you can see a decent chunk of your hard earned cash land back in your bank account each year, courtesy of the Australian Tax Office (ATO).
The problem is, the ATO seem to have a unique way of talking about tax – it’s in a language that no one else understands! Clicking through the pages of their website quickly makes you feel as if you’re a 3 year old trying to understand Game of Thrones.
Add to this the ATO’s reputation of having a rather unfriendly approach to mistakes and it’s no wonder that many young Australians would rather extract a tooth than attempt their annual tax return.
At this point, the first thing we can tell you is – YOU ARE NOT ALONE!!!
This page will help you ‘adult’ right by getting you up to speed on tax in no time.
So let’s get you tax savvy!
What is tax and who has to pay it?
The ATO collects a portion of everyone’s income to pay to the government. The government uses this money to pay for our roads, transport, hospitals, schools, living services and pretty much everything we need. Most people hate paying tax but without it, our country would pretty much grind to a halt. So don’t hate it, just don’t pay more than your fair share.
When do I start paying tax?
You will start paying tax as soon as you start earning money. However, you may get this money back at the end of each tax year if you earn less than $18,200 per year.
As soon as you start work, you need a tax file number (TFN) to be taxed correctly by your employer. If you don’t have one, your employer will take 49% tax from your wages. You don’t want that!
Your TFN is 9-digit number that is a unique identity number. This number is your TFN for your whole life and is also used by other government agencies and financial institutions to identify you. Always keep your TFN safe and do not show it to anyone.
So how much tax do I have to pay?
The amount of tax you pay depends on your income and circumstances. In general, the more you earn, the larger percentage of tax you pay.
Below is the current amount of tax you pay for each income bracket. You’ll notice that if you earn very little, you don’t pay any tax at all. If you earn a lot, you pay a lot more.
Tax Rates for 2018-2019:
Tax on this income
|$18,201–$37,000||19c for each $1 over $18,200|
|$37,001 – $87,000||$3,572 plus 32.5c for each $1 over $37,000|
|$87,001 – $180,000||$20,797 plus 37c for each $1 over $90,000|
|Over $180,000||$54,097 plus 45c for each $1 over $180,000|
What do I need to do my tax return?
Up until 2019, you needed a payment summary (PAYG) from your employer. If you had more than one job in any tax year you were sent a payment summary from each employer. Now an Income Statement is sent directly to the ATO by your employer(s) instead.
An income statement shows the amount you have been paid, the amount you were taxed, the amount of Superannuation your employer has paid on your behalf and any additional payments you have paid into your Super fund yourself. It also includes any allowances you were paid.
You don’t need to get your income statement from the ATO
It’s not necessary to actually retrieve your income statement from the ATO to do your tax return. The information in your statements is accessible to tax agents. so all the information is included in your tax return, just as it would be if you used the ATO directly.
Other income records
You should also provide evidence of any other income you have received over the year, this includes:
- interest on savings
- income from any activity in the sharing community (Uber, AirBnB etc.)
- any freelance income
- rent you received from renting out a room privately
- rental income on any investment properties you own or have a share in
- any other form of income that you received.
You need all your expense receipts to claim your tax deductions (see next item for more information on tax deductions). For most people, work related expenses make up the largest portion of their claimable expenses. You can claim work expenses IF the following are true:
- you spent the money yourself and weren’t reimbursed by your employer
- the expense was directly related to earning your income
- you have a record to prove that you spent the money
If you do not have a record for an expense, you cannot claim it as a tax deduction.
What are tax deductions?
Tax deductions are expenses that can be deducted from your taxable income. These help to increase the refund amount you get back from the ATO each year.
These can include:
- work related expenses
- self education costs
- some insurances
- interest payments
- costs relating to an investment property
- charity donations
- memberships and licenses
- work related publications or subscriptions
- and more…
Keeping your expense receipts
It’s important to keep receipts for all your expenses that you think you may be able to claim. If you’re not sure, a tax agent will be able to confirm what you can and can’t claim.
We advise all our clients to photograph receipts, using the Etax app, or to scan them and keep electronic copies. They are much easier to keep track of this way – which means you don’t miss any. It’s also much easier to organise your receipts as you go like this rather than trying to sort through a year’s worth in one go. Seriously, who has time for that?! :(
How do I do my tax return?
There are three ways to do your tax return
- By yourself, using the ATO’s software
- Use a traditional tax agent
- Or do it with an online tax agent, like Etax.com.au
How should I do my tax return—and what’s the difference?
If you do your tax directly with the ATO, you’ll need to put your personal details into “myGov” then use their myTax system. It’s not too difficult to use and it’s online, but it does take some time to complete. Doing your tax return by yourself with the ATO can also be a little complicated, especially if you’re not familiar with tax. You won’t get a reminder about an extra deduction or items that you missed. If you get it wrong, the ATO are not very lenient and can issue you with penalties. If you need to lodge an amended return, you have to hire a tax agent to help you.
Traditional tax agent
A tax agent will help you make sure you lodge a correct tax return and that you claim all the tax deductions you’re entitled to. Basically, a traditional tax agent’s job is to do your tax return for you. The negative of using a traditional, high street based tax agent is that you need to attend an appointment, usually during business hours and, depending on where you go, they can be quite expensive. You then take all your expense records and receipts to the appointment and sit with the tax agent while they prepare your return. This can take a little time.
Online tax agent
An online tax agent, like Etax.com.au, combines online convenience with the confidence of using a tax agent. You can do your tax return anywhere, at a time that suits you. Most online tax agents have affordable fees. It’s just once per year you need to pay for that help plus, the fee itself is tax-deductible.
Various online tax agents work differently, offering different levels of service and support.
With Etax.com.au – Australia’s #1 online tax agent – you receive a full, care orientated tax agent service.
You’re provided with as much or as little help and guidance as you need as you enter your details into our simple, user friendly online tax return. You can watch how-to videos, ask questions as you go; using live chat, or our ‘any other questions’ feature – or simply send us a secure message.
The whole process, from starting to signing your tax return, usually takes just minutes.
PLUS next time, your details are pre-filled for you, so it will take you even less time next year.
After you enter your details, our team goes to work. Any messages you sent are read and responded to as part of our prompt but comprehensive review of your tax return. Your return may be adjusted to complete or correct any areas you weren’t sure about. This review is also where we make sure that you haven’t overlooked anything that can boost your tax refund.
Your accountant will get in touch if they notice anything out of place or if they think you may have extra deductions. Unlike you and me, tax accountants can spot an out-of-place number a mile away! If the return was amended, your accountant will send you a note to confirm you’re happy with the changes before it’s lodged with the ATO.
When will I get my tax refund?
It stands to reason that the next big question to follow ‘How do I do my tax return?’ is ‘When will I get my tax refund?’
The answer is usually between 6 and 10 days from lodgement with the ATO, though it can often be faster. There are occasions that a refund will take longer, usually because the ATO want to look at certain aspects of your return – or during very busy periods. If you used a tax agent, they can contact the ATO on your behalf to see what stage your tax return is at in their system. However, the ATO does not accept enquiries until 30 days after lodgement of a return.
“My friend got an instant refund – how do I get one of those?”
Let’s be clear about this one: An instant tax refund is not actually a tax refund at all, it’s a loan. A loan that you could end up paying back if the ATO decide to withhold money or pass your refund on to another government department, like Centrelink. This does happen more frequently that you might think – in fact this is the main reason that a tax refund can turn out to be less than the original estimate. If you previously received over-payments from Centrelink or owe the ATO any money, you may not know it or remember when you lodge your tax return.
What happens then? If you received a loan from an “instant” tax agent, you have to pay EVERYTHING back immediately. If you can’t, you could find yourself on a costly payment plan with high interest rates and extra fees that dig into your wallet.
It’s totally understandable that sometimes you want or need your tax refund fast, and many people do get the whole refund they are estimated. But do you want to chance spending the money and then having to pay it all back? It really isn’t worth taking the chance.