"Income" is not defined in the Act, partly because it is a term that encompasses so many different concepts. In general it will be characterized by:
- a recurrent payment e.g. wages;
- the ability to be convertible to cash;
- a result of some activity undertaken by the taxpayer.
Assessable income & deductions
This is all the income that is available on which tax can be levied. From this amount you are permitted to subtract allowable deductions. In general these deductions are the money you spend in order to earn the assessable income in the first place.
When you have subtracted the allowable deductions from the assessable income you are left with your taxable income.
The Australian taxation system operates on the principle that the more you earn, the more you pay in tax. This is only a principle, of course, because there are many people who pay a lower proportion of tax on their gross income than others.
Often this is because of the level of deductions available to them or the source of their income.
This is a reduction of your tax liability.
It is not the same as a tax deduction. The latter is an expense that is subtracted from your assessable income to arrive at taxable income; a rebate, on the other hand, is deducted after tax has been calculated.
For example, it is possible to obtain a rebate if the taxpayer has dependents they financially support or pay medical expenses over a specified sum (not including refunds from health funds and Medicare).
Go to the Australian Tax Office (ATO) website for assistance in calculating your expected tax rebate e.g. there is a calculator for the family tax benefit for dependent children.
Leave & other employment entitlements
Tax can be levied at a different rate on leave & other employment entitlements. This is an area where it is certainly worthwhile to obtain professional advice.
These issues concern payments such as:
the amount of tax that is payable when you complete work with unused leave payments;the amount of tax that is payable when you complete work with unused long service leave;payments made to employees on terminating their employment;lump sum payments from superannuation schemes.
Social security benefits
In general, if Social Security is your only income, the benefit will not be taxable, and you may not need to file an income tax return.
There are some social security payments that may be considered assessable income. These include:
- age pension;
- bereavement allowance;
- carer payment (in some cases);
- disability support pension, if you have reached age pension age;
- parenting payment (single);
- partner allowance;
- widow B pension;
- wife pension (in some cases).
Get advice from your accountant.
Other taxable government allowances
The taxable component of government allowances and payments is calculated in assessable income, including:
- Austudy payment;
- mature age allowance;
- Newstart allowance;
- parenting payment (partnered);
- partner allowance;
- sickness allowance;
- special benefit;
- widow allowance;
- youth allowance;
- some Commonwealth government education or training payments.
Exempt income is not included in your tax return as income. Examples of income that is tax exempt include most child support and maintenance payments, most gifts under a will (you need professional advice regarding any capital gains tax eligible asset and whether it can be avoided), some personal injury awards, gambling wins unless the taxpayer is a professional gambler etc.
Capital gains tax is not generally payable on profit from sale of assets acquired before 19 September 1985. Get advice for other Government benefits and allowances.
In general you will not pay tax on a lump sum superannuation death benefit if you are a "dependent" (ask the fund trustee).
Defence Force Payments
The following payments are exempt:
- certain pay and allowances for Defence Force personnel - your employer will advise you if an amount is exempt;
- compensation payments for impairment or incapacity resulting from service with a United Nations armed force;
- pay and allowances for part-time service in the Australian Naval, Army or Air Force Reserve;
- compensation payments made under the Military Rehabilitation and Compensation Act 2004, except those that are income-related payments.
- some allowances paid to Defence Force personnel who served in prescribed overseas areas - your employer will advise you if an allowance is exempt.
This is a separate levy imposed on taxpayers to pay for the public health system. Unlike some other taxes, it is a flat tax imposed on the taxpayer's total taxable income.
In certain circumstances, especially for low income earners, there are exemptions from payment of the levy. Check the Tax Pack or speak to your tax agent.
There is also an additional surcharge applied to taxpayers who are not members of a private health scheme and whose income exceeds a certain sum, depending on whether the taxpayer has a family.
Conversely If your income is below certain thresholds you do not pay the Medicare levy. Consult the Tax Pack for details.
Families and individuals who pay private health insurance premiums to a registered fund are eligible for a rebate on the cost of their private health insurance.
The policy must cover people that are eligible for Medicare. Importantly, this is not means tested, so it doesn't matter how much you earn or the level of family income. Arrangements for payment or a "claim back" can be made:
with the fund form a Medicare officethe ATO.
HELP (Higher Education Loan Programme)
Eligible students have access to deferred payment or loan schemes through the Higher Education Loan Programme (HELP). The HELP scheme consists of:
HECS-HELP is a loan available to eligible students enrolled in Commonwealth supported places. A HECS-HELP loan will cover all or part of the student contribution amount.
FEE-HELP is a loan given to eligible fee-paying students to help pay part or all of their tuition fees.
Payment by installments
It is possible to get an extension to pay tax, but you will have to convince the ATO that there are legitimate reasons for it to be granted.
It is also possible to apply to make a tax payment by instalments. Make sure you make the application before the tax is due, ring the ATO to ensure you make the application on time, or speak to your tax agent.
Last Updated – April 2010