Basics Of Individual Tax Returns In Australia (2022 Edition)

While lodging a tax return in Australia isn’t supposed to be challenging, but it often can be. If someone hasn’t done this before, haven’t been aware of the process entirely or has not been provided with an overview of this essential annual task for Australian life – this article will solve that. It aims to provide a basic overview of individual tax returns in Australia for 2022.

What Is Tax?

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organisation in order to fund government spending and various public expenditures.

Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances, deductions, reliefs etc.

A failure to pay in a timely manner (non-compliance), along with evasion of or resistance to taxation, is punishable by law in Australia and elsewhere around Earth.

Little known fact – the first known taxation took place in Ancient Egypt around 3000–2800 BC.

How Much Tax Do Individuals Have To Pay In Australia?

The amount of tax that an individual needs to contribute to the Australian government does depend on their situation but it is determined by the personal income a person has earned during the financial year once all legal tax deductions have been applied.

Tax is also calculated as a % of personal income earned with this % increasing with the amount of income that has been earned as it is on a sliding scale. 

The current personal income tax brackets in Australia for 2021 / 2022 are listed below to provide some guidance on what percentage tax rate could be expected based on personal income earned.

Taxable Income Brackets & Taxation Rates On This Income: (2021/2022 Financial Year)

1. $0 – $18200 = $0 tax (known as the tax free threshold) 

2. $18201 – $45000 = 19 cent for each $1 over $18200

3. $45001 – $120000 = $5092 plus 32.5 cents for each $1 over $45000

4. $120000 – $180000 = $29467 plus 37 cents for each $1 over $120000

5. $180001 and over = $51667 plus 45 cents for each $1 over $180000

Tax Refunds & Tax Lodgements

A tax refund is when the government pays money to a taxpayer because the tax they have paid throughout the year is in excess of what they owe. Calculating if overpayment (or underpayment) has occurred is determined through the process of “lodging a tax return” or a tax lodgement which takes into account everything throughout the financial year. 

For individuals who’re employed on a fixed salary & don’t have an extra source of income, it would be fair to assume that they will receive some type of tax return due to overpayment if they’ve had taxes withdrawn from their salary throughout the year.

For individuals who are employed but also have other sources of income such as rental income or dividend income through the year, this income will be added to a personal income so it can increase the amount of tax owed to the ATO. Given that this taxation has not been paid periodically, there is potential for those in this situation to actually not receive a refund but a tax bill.

Tax Lodgements & Returns can get complicated very quickly so once multiple income sources become involved,  it’s recommended and often beneficially that a discussion with a professional accountant regarding this is held to explore taxation strategies and how to ensure that the maximum deductions possible are being claimed. 

Tax Deductions: What Are They & What Can Be Claimed?

Tax deductions are expenses that can be subtracted from the income an individual has generated throughout the financial year lowering the amount of money earned that is taxable.

Deductions can be submitted for many types of expenses with them all generally being related to being costs incurred while generating an income.

With a great many types of tax deductions that can be claimed & that the rules surrounding these change very frequently, it might be a wise dedication to receive some professional assistance to get the maximum deductions possible.

That being said, here are some of the types of deductions that are common for Australians in 2022. 

Work-Related Deductions

Work-related expenses that can be viewed at tax deductions include purchasing work clothing, dry cleaning (in some cases), laundry expenses, vehicle expenses, travel expenses, home office expenses, self-education expenses if it’s related to generating an income, work-related car expenses, prepaid expenses, protective clothing expenses, tools expenses, etc. The list goes on but it must be understood that if these expenses are for work and private uses, workers will only be able to claim tax reduction on the work-related part. 

A very relevant deduction in 2022, given the impact of COVID and the changes in the way people work, are deducations related to working from home. Some dedications to consider are occupancy (the cost of the building), running costs (utilities, electricity etc), consumables (stationery items needed), equipment (computers), furniture etc.

There are a number of dedications for individuals to review to determine if they are applicable to their circumstances. Along with this, there are multiple methods that can be used to calculate these deductions.

More information on these methods can be found here on the ATOs website

Asset Owners:

For those generating income through a business or through other investments – many more deducations quickly become available. If investment properties are owned generally, things such as real estate agent fees, property expenses, advertising expenses to get a tenant, depreciation, borrowing costs, legal expenses, losses generated through property ownership etc can also be claimed as a dedication against personal income (in most circumstances). It’s often worth it to consult a taxation professional to discuss the best approach here when assets are owned to ensure the maximum deductions are being claimed. 

Other Deductions:

Other expense records that can be used as a tax deduction includes medical expenses, educational expenses, clothing expenses, tax accountant fees, the interest charged by the ATO, superannuation contributions etc

When Is A Personal Tax Lodgement / Tax Return Due?

For individuals, tax returns are due by the 31st of October each year. That being said, there are 2 other dates of importance for Australian individual tax returns. They are as follows:

  • 30th June – the end of the financial year.
  • 7th July – the Australian taxation office (ATO) starts to process the tax return of the previous financial year.
  • 31st October – tax return deadline for the previous financial year

It should be noted that the relevant dates for businesses are different for individuals. 

The Ways A Tax Return Can Be Lodged

Tax returns can be lodged independently online or through a certified tax accountant or agent.

To lodge a tax return independently, a myGov account is needed. Once an individual has registered for a  myGov account they can move on to the next step by linking it to their Australian Taxation Office (ATO).

This process will involve using providing a date of birth, full name, and a Tax File Number (TFN). To then continue to lodge a tax return – look for assistance from the ATO website directly as they provide a lot of detailed information & guides – far more than is provided here so that is the best next step.

To lodge through a tax accountant or tax agent – contact the one you wish to work with and they will outline the next steps.

Why Work With A Tax Accountant/Agent?

The decision to use a professional accountant or not depends on many parts of an individual’s circumstances with a major one being how confident they are in lodging their tax return. For those note confident, time-poor, multiple streams of income or on a high level of income – it often makes sense to use the services of a tax accountant. The choice is up to the individual but some advantages of working with a professional are listed below.

Advantages of a Tax Accountant 

Tax-Deductible Fee: Fees are completely tax-deductible when using a tax accountant so all fees, effectively, have a discount of whatever the individual tax rate of the person is (they’re at a discount because the money used is, essentially, tax-free money)

Accurate Claims: The ATO can give fines for improper or inaccurate tax deductions. properly or make any mistake. The tax accountant will ensure the individual tax return is made correctly and lodged on time.

Claim More Tax Deductions: Tax accountants are experts. They have the needed resources and knowledge about what can be claimed and what cannot ensuring the smallest tax payment possible is made with the largest refund being provided to the individual. 

Final Thoughts

Tax is an essential part of modern living. Regardless of individual circumstances, the chances are that all people will be involved with the ATO each year is rather high. The information above is a basic overview of what key information needs to be known by Australian taxpayers about their tax returns.

For those looking for more information or assistance with taxation, The Accounting Centre can help. They’re the accountants Albany trusts. The Accounting Centre offers complimentary consultations to people looking to get help. Visit the website and schedule an appointment today.

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