From Tax Files Numbers and tax rates to tax returns, all working Australians are required to pay tax.
And although it’s not the most glamorous subject (sorry not sorry accountants), it’s important you understand why a percentage of what you earn goes to the government.
What’s a tax file number?
When you start a new job your employer will ask for your Tax File Number (or TFN) – a personal reference number that’s required so you can pay tax to the Australian Tax Office (ATO) and set up a superannuation account.
The Tax Office provides details of how to apply for a TFN. Make a note of your TFN as it will stay with you for life. Without a TFN you could pay more tax than necessary and be unable to access any government benefits you may be entitled to.
Who pays tax?
You’re required to pay tax if you earn more than $18,200 in a financial year. Above this threshold the rate of tax you pay is based on a tiered scale, meaning the more you earn, the higher the marginal rate of tax you pay. Along with tax, the 2% Medicare levy is also deducted from your pay.
How do I pay tax?
Your employer will deduct tax from your wage or salary in line with how much you have earned in a particular pay period. If you’ve worked a few extra shifts or some overtime, your employer may withhold more tax because your before-tax pay is higher than normal.
Why do I pay tax?
We’re pretty lucky here in Australia. We have some amazing public hospitals; one of the world’s best health care systems, Medicare; great public schools; safe roads and transport; a defence force; and Centrelink – payments and services for retirees, the unemployed, families, carers, parents, people with disabilities. Income tax helps fund these services and more.
Income tax helps fund these services and institutions to ensure Australians have access to doctors, hospitals, roads, education and financial aid in times of hardship.
Completing a tax return
Your annual tax return is a chance to square up your tax with the Tax Office.
The Tax Office will calculate how much tax applies to your taxable income for a particular financial year, and compare this to how much tax has been withheld from your wage or salary. If it turns out you’ve paid too much tax (or you claim expenses related to your field), you’ll receive a tax refund. Or, if there’s a shortfall, the Tax Office will send a letter asking you to pay the balance.
All Australians who earn over $18,200 in a financial year are required to pay tax – it’s something you can’t avoid. But instead of feeling short-changed, know that your tax goes towards important services to help make Australia one of the best places to live in the world.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.