Tax is money we are required to pay to the government so it can provide community services like health, education, roads and railways, social security, welfare and defence.
Whether you have a part-time, casual or full-time job you may be required to pay tax, depending on how much you earn.
The nice thing about doing your tax return is that you could also get a refund if it turns out you've paid more tax than you needed to over the year. That means the government will send you money equal to the amount of extra tax you paid, which is a very good reason to get your tax sorted every year.
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There are a number of different kinds of taxes but it's likely the most relevant to you is income tax. At the end of each financial year (the financial year runs from 1 July to 30 June the following year) you have to declare how much money you have earned to the Australian Tax Office (ATO).
If your tax return shows that the amount of tax taken out of your wages is more than you should have paid, you will receive a tax refund equal to the extra amount of tax you paid.
If your tax return shows that the amount of tax taken out of your wages is less than you should have paid, you will have to pay the difference.
Pay as You Go Income Tax (PAYG)
Pay as You Go, often called "PAYG", is a system that involves you estimating how much tax you are likely to owe by the end of the financial year and paying periodic instalments - usually quarterly - throughout that financial year.
After the actual amount you earned in that financial year is calculated, you will be either refunded any extra money that you paid (if you paid more than you needed to), or you will be asked to pay the extra amount that you owe (if you paid less than you should have). Find out more about the PAYG system (new window).
Not everyone has to do a tax return. To work out if you need to do a tax return, you can check the ATO's Do I Need to Lodge a Tax Return? online tool (new window).
When is My Tax Return Due?
If you do have to do a tax return, and you are lodging the return yourself (using the tax pack or the e-tax tool) you need to make sure that you complete it by 31 October of the following financial year. For example, if the financial year ends on 30 June 2012, then you have to make sure your tax return is submitted by 31 October 2012.
If you don't lodge your return by 31 October there's a chance you could receive a Failure to Lodge on Time (FTL) penalty (new window).
If you are lodging your return with the help of a registered tax agent, the 31 October deadline does not apply.
There are a few different ways you can do your tax return. You can:
- Do it online using e-tax (new window)
- Complete a paper tax return and send it through the mail (new window)
- Use the ATO's telephone lodgment service (if you are eligible)
- Get a registered tax agent to do it for you (new window)
While it may seem difficult at first, calculating your tax should get easier the more often you do it. The main thing to remember is to keep good records of all of your expenses (i.e., what you spend) and all of your income (i.e., what you earn). Check out the ATO's advice for keeping good records (new window) for more tips on what you should be hanging onto.
A Tax File Number (TFN) is a unique number given to you by the ATO that is used to identify your tax records. Everyone has a different TFN. Your TFN is yours for life, even if you change jobs, move interstate or change your name. If you leave the country and later come back to Australia, you still use the same TFN.
When you make enquiries about your tax records, the ATO will ask you for your TFN (as well as other info to confirm you're who you say you are).
You should never share your TFN with friends or provide it over the internet when applying for jobs.
It's not compulsory to have a TFN, but without it:
- Your employer must take 46.5% of your wages in tax
- Financial institutions are required to tax your interest at 46.5%
- Centrelink will generally not pay you an allowance like Youth Allowance, Newstart or Austudy
- You won't be able to defer your higher education fees
- Your tax returns or Australian business number (ABN) applications may take longer
- It's harder to find out about your financial records from the ATO
Applying for a Tax File Number
To get yourself a TFN all you have to do is visit the ATO website's Tax File Number pages (new window). There are different ways to get a TFN, depending on whether you're at secondary school or not.
After you submit your tax return you will receive a Notice of Assessment. This is a letter that tells you whether you will receive a tax refun, or whether you have to pay additional tax on top of the tax you've paid throughout the year.
If it turns out you're due to get a refund, your Notice of Assessment will tell you exactly how much you are going to get paid. You usually get your refund within 12 business days (if you lodged your return electronically) or 50 business days if you did your tax return on paper.
Tax returns are usually paid straight into your bank account, if you have provided your bank details. Otherwise you will be sent a cheque in the mail.
If it turns out you haven't paid enough tax, your Notice of Assessment will tell you how much more tax you need to pay, and when you need to pay it by.
You can pay additional tax at a range of places, including:
- Credit card
- Direct credit
- Direct debit
- Over the counter at Australia Post
If you're having difficulty paying, you can contact the ATO to organise an alternative payment arrangement. You can call them on 13 28 61 between 8am and 6pm Monday to Friday (excepting public holidays).
If you are starting a new business you are required to register an Australian Business Number (ABN) (new window) and register for Goods and Services Tax (GST) (new window). GST is a 10 per cent tax on most goods and services that as a business owner you are required to collect and pay to the government each financial year.
Visit Getting Started - about income tax and deductions for small business (new window) for more information.
For a fee you can get someone else to do the paperwork for you. Keep in mind that while you might have to pay money up front an experienced registered tax agent (new window), they may be able to do a better job at working out your entitlements and you may actually save money.
Tax Help for Low Income Earners
If you are on a low income and are struggling to understand how to work out your tax, the ATO has a Tax Help Program where trained community volunteers provide confidential free assistance (new window).
Australian Taxation Office (ATO)
Your primary source of information about tax with information for individuals and businesses.
E-tax is the ATO's free online tax return tool.
Tax Practitioners Board
Includes a list of registered tax agents who are permitted to lodge tax returns on behalf of other people.
Tax Payers Australia Inc
A not-for-profit organisation designed to educate tax payers about issues to do with tax and superannuation. Includes a section called 'tax tips' for more advanced taxation issues.
Tax refund tips from the Australian Securities and Investments Commission (ASIC).