First time doing your tax? Here's an understanding of what it's all about.
Well you’ve finally got your first job and you’re feeling good, a bit of extra coin to splash around, you can finally get away from your parents and buy the things you want. The first pay day and hey!!, there’s some money missing, what’s the story there? Well welcome to adult hood, it is the time we first realise that the tax man has struck and you’re not really sure what to make of it. You’re unsure what to ask and why it’s happening. Well we’re about to enlighten your curiosity, or lack thereof, with a broad-brush approach to what it’s all about. So, sit back, take a chill pill and gain some insight into how your pay will get pillaged each pay day till you move on to your next life.
Really Taxation – is that something for old people?
Let’s start with what taxation is meant to be. That way you may feel a little better, knowing your money is being “invested” within the country you live in. Taxation is what the government charges you to live in this fine country and enjoy all the fantastic benefits. With that money the government does things like; protecting you with police and the defence force, keeping you healthy by providing you with medical services, building the roads and making you smarter by educating you and a whole range of other stuff. There must be a whole lot of other stuff because we have a whole lot of politicians to keep employed. For the Government to ensure you are handing over enough money, you need to tell them. And you do that by lodging a document called a “Tax Return”.
I don’t even know what a Tax Return is…
A “Tax Return” informs the government on how much money you made during the year. It’s used to check that you have paid your “fair” share of tax. So, the Tax Return includes all your income from various sources and all those expenses you had to spend to earn that income.
If you have overpaid tax during the year, you may get a refund. If you have underpaid tax during the year, you may get a bill. It’s this Tax Return that works all that out for you.
My boss already takes tax, why do I need to lodge a tax return?
Yes, it’s your employers’ role to take tax out of any pay you receive from them. They will take out an amount of tax based on how hard you worked during the week. At the end of the year all those “bits” of tax, your employer has paid, are added up and form a credit for you. It’s these credits that can form part of any refund. You need to lodge a tax return to work all that out.
What’s the story if you only work for part of the year?
If you only worked part of a year, the chances are you would most probably receive a refund.
Firstly, check your payment summary. Has your boss taken any tax from your pay? If they haven’t and you made less than $23,227, you’ll need to tell the ATO that you don’t need to lodge a tax return. If your employer has taken tax out and you’ve made less than $23,227, then you’ll get the tax you have paid back. But you’ll need to lodge a Tax Return to see your money.
What is a Tax File Number?
Commonly known as a “TFN”, this is a unique 9-digit number made just for you so that the tax office can “identify” that you are in fact you.
You may need to hand this number over to a couple of places e.g. your bank, your employer and Centrelink. That way the tax office can pull all of your financial information from them, this is to make sure you don’t miss anything when you do your tax return.
Never hand out your Tax File Number to random people or businesses. Always check with the tax office or us, before you hand this out. If the wrong person gets a hold of your TFN they may attempt to impersonate you or scam you out of money.
When do I have to do it?
You have until the 31st October each year to lodge your tax return. Fines can apply if you lodge after that date. There is an exception, Tax Agents can lodge your return after that date as long on you are on their “List”. To get on their “List” you need to tell them before 31st October. GoTax are registered agents.
Where and how do you do a Tax Return?
Generally, you have three options to do your Tax Return. Firstly, do it yourself. Secondly, find a local tax agent, make an appointment and then travel to their office and get it done. Lastly, go online with a reputable online tax agent service and fill out the prompts. Gotax.com.au is a reputable, accredited online provider.
What if I don’t do it on time?
If you lodge a late tax return you may be hit with a $210 fine. If the end result is a tax bill, you may also have to pay interest. Lodging it even later, the fines can max out to $1050.
Best thing to do is lodge on time.
What about Centrelink payments? Are they taxed?
Payments from the Centrelink e.g., Newstart Allowance or Youth Allowance generally aren’t taxed unless you ask Centrelink to withhold tax. If these payment are your only income then you should be fine. If HOWEVER, you received Centrelink payments AND also worked during the year you could find yourself short of tax… so be careful.
We suggest you ask Centrelink to withhold tax from these payments to prevent a tax bill if you are receiving benefits and transitioning into the workforce.
Sh*t! I got my Tax WRONG – Will I be Jailed?
For those who have made an honest mistake, you can lodge an amended tax return with the correct info. It may not always have a positive result e.g. you may end up with a tax bill if overpaid – or in some cases, you may get a bigger refund, depending on the mistake.
If the Tax Office notice a mistake, sometimes they’ll automatically fix your tax return for you, without a word. In other cases, they may conduct an ‘audit’, a fancy term for taking a close look at your tax return, and check that you have the correct tax documents to support your tax claims.
Once again, if it’s an honest mistake, they may not fine or penalise you, but if they have already issued your refund, you may have to repay money to the tax office.
What is a tax deduction & how do I know?
Tax deductions are costs that you need to spend money on in order for you to do your job. These costs, however, don’t include costs that are considered to be normal costs of living, such as your lunch at work. These costs are then used to lower your total income earned during the year, this reduces how much tax you have to pay. So, it’s always a good idea to keep your receipts to track these costs (expenses).
Other than wages, what do I have to pay tax on?
The government has a pretty wide net that catches many classes of income that all add up for you to pay tax on. For the average person that would include things like; bank interest, dividends from shares, extra income you get on the side, money from business ventures and things like that.
What can I claim?
It all depends on the job you currently have. So any costs that are unique to you doing that job. As there are many types of jobs out there, we can’t possibly list everything here. Best is to go to gotax.com.au, select your occupation and then the common expenses associated with that occupation will appear. That’s your starting point.
How much does it cost to use a Tax Agent?
Like any service costs vary from place to place and whether the agent is online or not. For a really simple return you can get that done for $10 online. Then prices can range up to a couple of hundred dollars depending on where you shop. The GREAT NEWS is that the fees you pay to get your tax return done are in fact a Tax Deduction for you. Gotax.com.au has some of the cheapest prices in the country.
What can I claim as a student?
Sadly, not much. If you’re studying and doing some part time work, then there are no tax deductions for your study. The only time that changes is where you have a job and a condition of the job requires that you study, in that case, some deductions for your education can be claimed.
How does the tax work, is it a percentage of my pay?
You can safely earn $23,227, ($446 per week) before you start paying tax. Then for every dollar you earn over that, you need to hand the government 19 cents. That’s only until you earn $xxxxx, in which case you’ll be handing over xx%. Then……..
Sweet, I want a bigger refund, when do Tax Deductions Start?
They start when you buy something for work. if you have to wear & wash a uniform with your company’s logo attached or use your phone, car or home office for work.
The trick is keeping track of the details to get the best tax refund possible.
You can do this by taking photos of your receipts (so they will never fade) and keeping logbooks for your phone, car & office use.
If you’re under the tax-free threshold ($23,227), deductions won’t get you a bigger refund. You’ll just get all of your tax back.
What’s a logbook?
A logbook is the way you prove to the tax office that you used an item, like your phone, car or home office for your work. Phone & home office require one-month logbooks each year and cars require 12-week logbooks every five years (as long as your job doesn’t change). You can find logbooks and instructions on how to use logbooks in the phone, home office & car sections of our tax return at www.gotax.com.au.
What’s a refund?
This is where the money you have paid during the year (through your pay) is too much for the amount of Income you earned for the year. You get any amounts of excess payments refunded back to you. It’s worked out when you do your tax return and takes about 7-14 days after your tax return has been lodged to reach your bank account.
What’s a Tax bill?
This is the opposite of a refund. This means you haven’t paid enough tax during the year and will have to pay extra tax to the tax office. You’ll receive the amount you owe, when you need to pay it, with a payment slip on your “Notice of Assessment”.
Notice of Assessment? What is that?
It’s the last piece of your tax return puzzle for that year.
Once your tax return has been processed by the tax office, you’ll receive a piece of paper that shows you how much you earned, how much tax you had to pay, and it shows the outcome of your tax return e.g. a refund or a tax bill.
What about HECS, how does that work?
If you earn over $47,014 from 1 July 2021 you’ll have to start paying your HECS/HELP debt back.
So, here’s the trick, if you have a HECS/HELP debt, let your boss know when you start your job.
This will prevent a potential tax bill when you lodge your tax return.
Don't I pay for doctors already?
Maybe. But you aren’t just paying for yourself – you’re paying for all Australians doctor visits and procedures, thanks to Medicare.
I had to get a Tax File Number, but I don’t work… do I still need to do a Tax Return?
No, you don’t. But! You need to tell the ATO that you don’t need to lodge a tax return, otherwise you’ll have years and years of tax returns sitting in your account marked as “overdue”.
So, let us know, and we can add you into our “Portal” (a cool name for how we access your Tax Records) and we’ll tell the ATO for you.