Simple Explanation of Tax in Australia
Welcome! This video is perfect for those new to tax returns, whether you’re new to Australia, a young person filing for the first time, or someone who has never fully understood how tax returns work.
I’m Romeo Caporaso from taxaccountingadelaide.com, and I’ve been a taxation agent since 2010.
Let’s start with the basics of how tax works in Australia.
Taxable Income Formula
Taxable income is essentially your profit or income earned, which is taxed at progressive rates. The formula is simple:
Taxable Income = Income – Deductions
Examples of Income:
- Wages
- Dividend income
- Interest income
- Business income
- Rental property income
Examples of Deductions:
- Work-related car costs
- Uniform costs
- Union fees
- Course fees
- Working from home expenses
- Business and rental property deductions
Progressive Tax Rates
Taxable income is taxed at rates that increase as your income rises. Here are the current tax rates for the 2024-25 tax year for Australian residents:
Example Calculation
If your taxable income is $100,000, you are taxed at $4,288 plus 30% for each dollar above $45,000, which totals $22,788 in tax.
Each dollar of deduction at this income level effectively saves you 30% in tax. So, the value of your deduction is 30% of the amount deducted.
Tax Refund Calculation
Your tax refund is calculated as follows:
Tax on Taxable Income – Tax Paid – Tax Offsets
Tax offsets directly reduce your tax payable. Examples include franking credits on dividends and pensioner offsets.
- If your tax on taxable income is greater than the tax paid and tax offsets, you owe tax.
- If your tax on taxable income is less than the tax paid and tax offsets, you get a refund.
Tax paid is taxes taken out of your wages.
Additional Information
- The central government agency regulating taxes is the Australian Tax Office (ATO).
- Keep receipts for all your deductions.
- The tax year runs from July 1 to June 30.
- Tax returns must be completed by the following October, or later if you have a tax agent.
We recommend using a tax agent. Their service fee is tax-deductible and can help you get the best result on your tax return while avoiding costly mistakes.
