Taxation

You are liable to pay tax on your taxable income earned over an income year. For the majority of taxpayers, the income year runs from 1 July to 30 June. The process for determining the amount of income tax you are required to pay is outlined in the table below.

The elements of the process can be described as:

• Assessable income is the income on which tax is assessed or levied. If you are an Australian resident for tax purposes, it includes income you have earned anywhere in the world. It includes ‘ordinary income’ (i.e. amounts that courts have determined to be income), and ‘statutoryFound in a statute of delegated legislation. For example, a statutory authority or body is aperson or organisation that has special powers given by parliament to do work for the public benefit. income’ (i.e. amounts that are specifically included in assessable income by the Acts). Common types of assessable income include salary and wages, terminationThe end of something. Contracts terminate when the parties have done what they agreed. A contract can also be terminated without being completed, for example if one party breaks the contract, or it is impossible to carry out. payments from employment, dividends, interest and rent received, and net capital gains derived during the year.
• Allowable deductions are amounts spent to earn an assessable income – other than amounts that are capital, or private and domestic (e.g. clothing, child care and the cost of getting to and from work are private and domestic expenses, and cannot be deducted).
• Marginal tax rate is the tax rate that applies to your level of taxable income. The greater the amount you earn, the more tax you pay; not only because you have received more dollars, but because higher incomes attract higher tax rates. Changes to the marginal tax rates were introduced by the federal government in their 2020–2021 budget. A comparison between the marginal tax rates for the 2019–2020 financial year, and those to take effect from 1 July 2020 and from 1 July 2024 are shown in the table over the page.
• Rebates or tax offsets are direct reductions in the tax you must pay. It includes dependants rebates, the Family Tax Benefit, childcare tax offset, private health insurance rebate, low income rebate, senior Australians tax offset, medical expenses rebate, and franking credits attached to dividends received.
• Higher education debts include the Higher Education Loan Program (HELP) and the Higher Education Contribution Scheme (HECS).
• Medicare levy is paid at a flat rate of 2 per cent of your entire taxable income unless you are a low-income earner. Also, a Medicare levy surcharge is applicable if your income exceeds a certain threshold and you do not have private health insurance. The surcharge is calculated at the rate of 1–1.5 per cent of your income.
• Tax paid during the year primarily consists of amounts paid under the Pay-As-You-Go (PAYG) system, including amounts withheld from your salary and wages by your employer, or (if you conduct your own business) tax instalments paid during the year. You willA document that sets out what a person wants to happen to their money and other property after they die. receive a refund if you have paid more tax during the year than is required. You have to pay more tax when your tax liabilityLegal responsibility, enforced by civil or criminal courts. is greater than the tax instalments already forwarded to the ATO on your behalf.