Sort Out the Income You Must Lodge on Your Tax Return
Broadly speaking, if you are a resident of Australia, you must annually lodge an income tax return and pay annual taxes on worldwide income from many sources.
If you are lodging directly, the deadline is October 31 for the previous tax year ending on June 30. If the deadline falls on a weekend, you can lodge on the following Monday without incurring a penalty. Taxpayers who lodge through tax agents should check with them for their deadlines, which vary. You must, however, contact a tax agent by October 31 if you are using one for the first time or are switching to a new one.
Here is a list of the most common sources of income you must report to the Australian Taxation Office (ATO).
Employment
With some exemptions, you must declare all income generated from employment. The most common types of employment income are:
- Salary, wages and tips;
- Allowances from your employer, such as a car allowance; and
- Lump sum payments. Concessional treatment may apply, such as when you receive termination payments.
Pensions, Annuities and Government Payments
- Pensions, which are series of superannuation income streams, generally have both a taxable and a tax-free component.
- Annuities — a series of payments typically purchased with a lump sum from a life insurer — also contain taxable and non-taxable elements.
- Government payments include payments such as age pensions and youth allowances.
Some government payments are subject to income tax while others are not. For example, disability support pensions can be taxable or exempt depending on, among other things, the age of the recipient.
Interest, Dividends and Rent
Interest income is generally taxable. For example, if you put money into a savings account for your child, you may need to declare interest earned on that account. Life insurance bonuses are also taxable.
If you own shares in a company, you must declare all assessable dividends paid or credited to you. You may receive dividends as cash or bonus shares from listed investment companies, public trading trusts, corporate unit trusts and corporate limited partnerships as a distribution. If you are paid or credited with bonus shares, the issuing company should provide you with a statement indicating whether the stock qualifies as a dividend. Payouts are assessable income in the year they are paid or credited to you.
Australian resident company dividends are taxed under a system called “imputation.” The tax the company pays is “imputed” to the shareholders as franking credits attached to their dividends. Depending on your financial circumstances, your might be able to use those credits to offset other tax liabilities.
Rent and rent-related payments are taxable. As an example, money from a bond associated with a lease is taxable if you received it because a tenant defaulted. Other rent-related payments may have to be declared on your income tax return.
Capital Gains
Australia does not have a separate capital gains tax. Gains are simply added to your ordinary taxable income.
Capital gains typically result from the sale of assets, such as real estate, shares or managed fund investments. The gain is the difference between what you paid for the property and the amount you received when you sold it. There are, however, many other ways to generate capital gains. Complex rules govern when gains may trigger a tax obligation, which often depends on the type of asset.
Foreign Sources
If you qualify as an Australian resident, you are taxed on worldwide income. That means you must declare all income from sources outside the country, such as foreign pensions and annuities, foreign employment income, and capital gains on the sale of foreign assets.
Foreign income may also be taxed in the country from which the income is sourced, and that could result in double taxation. However, Australia has tax treaties with more than 40 countries, including all of its major trading partners, that minimise or eliminate double taxation.
Residency requirements are complex, so if you are not sure of your tax status, consult a professional.
Partnerships and Trusts
You must pay income tax on your share of a partnership’s net income and, generally, on trust income you receive as a beneficiary.
Compensation and Insurance
If you lose salary, you may have to declare money you receive from an income-protection scheme, such as Workers’ Compensation or accident insurance. Compensation received for a personal injury caused by others, the payments may be tax-free if certain conditions are met.
Tax-Free Payments
Some payments are not taxable. For example, some Australian government pensions, allowances, first-home saver account government contributions, superannuation co-contributions, child support and spouse maintenance payments are all tax-free.
Income tax regulations can be very complex in some situations so consult with your tax adviser to ensure you meet all your obligations with the ATO.