Income Tax - Facts & Myths
Income tax is one of those things that everyone has their own understanding of and in most cases it’s more fiction than actual fact You have probably heard it all including - a second job is double taxed and if you have an ABN and a PAYG job you can claim two tax free thresholds. We want to debunk these myths and finally sort fact from fiction.
All Centrelink / Services Australia payments are Tax Free
There are very few Centrelink / Services Australia payments that are exempt from Income Tax, they include;
Certain Australian Government pensions, including the disability support pension paid to a person who is under age-pension age
Certain Australian Government allowances and payments, including the carer allowance and the child care subsidy, Family Tax Benefit A & B
Please be aware that most of Centrelink / Services Australia payments are actually taxable, including but not limited to the following payments;
Newstart / JobSeeker / Youth Allowance
Austudy / Abstudy
IMPORTANT to note; If you only get Government payments and no other income you more than likely will not have to lodge a tax return or have a tax debt. If you have any other income or if you have had any PAYG withheld from any Government payments you will need to lodge a tax return
Claiming the tax-free threshold If you're an Australian resident for tax purposes, the first $18,200 of your yearly income isn't taxed. This is called the tax-free threshold. You can claim the tax-free threshold to reduce the amount of tax that is withheld from your pay during the year. When you start a job, your payer (employer) will give you a Tax file number declaration to complete. Centrelink is also a payer and they will give you this form if you apply for their payments. You tell your payer you want to claim the tax-free threshold by answering Yes at question 8 'Do you want to claim the tax-free threshold from this payer?’ The $18,200 tax-free threshold is equivalent to:
$ 350 a week
$700 a fortnight
$1,517 a month
When your taxable income exceeds the tax-free threshold you pay tax on the excess If you have income from two payers You may be paid by two or more payers at the same time. For example, you may:
have two jobs
receive a taxable pension or government allowance and also have a regular part time job.
If you have more than one payer at the same time, we generally require that you only claim the tax-free threshold from the payer who usually pays the highest salary or wage. Your second payer is required to withhold tax at the higher, 'no tax-free threshold' rate. The same applies to any additional payers. This reduces the likelihood of you having a tax debt at the end of the financial year.
Sometimes the total tax withheld from all sources may be less or more than needed to meet your end-of-year tax liability. You won't be out of pocket because the withheld amounts are credited to you when you lodge your income tax return. But if you want, you can apply to change the amounts withheld to more closely match your end-of-year tax liability If your income is less than $18,200 If you're certain your total annual income from all payers will be less than $18,200 you can claim the tax-free threshold from each payer NOTE: If you do this, and your total income later increases to above $18,200, you'll need to provide a new Withholding declaration to one of your payers to stop claiming the tax-free threshold from that payer If your income is over $18,200 and too much tax is withheld You can apply to reduce the amounts withheld from your payments by lodging a PAYG withholding variation application. When the ATO receive your application, they will calculate the varied amount and provide your payers with new instructions for withholding tax. You should only apply for this variation if you're certain of your income amounts and are disadvantaged by the current withholding rates. If too little tax is withheld Sometimes the total tax withheld from your payments may be too little to cover your likely tax liability. To avoid an end-of-year tax debt, you can ask one or more of your payers to increase the amount they withhold from your payments. Your request should be in writing, but can be in any format – you can send an email request, or a paper or computer-based form If you're a resident for part of the year Your tax-free threshold is less than $18,200 in a financial year if you:
entered with the intention to reside in Australia during the year
left Australia with the intention to reside overseas during the year
If you're a non-resident you're not entitled to the tax-free threshold. This means you pay tax on every dollar of income you earn in Australia. If you were a resident for part of the year, you have a tax-free threshold of at least $13,464. The remaining $4,736 of the full tax-free threshold is pro-rated according to the number of months you were a resident:
$13,464 + $4,736 × (number of months as a resident of Australia ÷ 12)