Income Tax Accounting for Individuals

In Australia, individuals and businesses are required to pay taxes on their income. The amounts individuals or businesses must pay depend on their income, personal circumstances, and other factors, such as deductions and tax credits. The tax rates and thresholds for the Australian income tax system are set by the Australian government and can vary from year to year.

If you earn over a certain amount per year, you are generally required to pay income tax. This amount is known as the tax-free threshold, which is currently set at $18,200. If your income for the year is less than $18,200, you generally do not have to pay any income tax. However, the tax rates and thresholds can vary depending on factors such as your income, residency status, and other circumstances. To determine your specific tax obligations, it’s recommended to consult with a qualified tax professional or the Australian Taxation Office.

Individuals are required to pay income tax on a yearly basis. The tax year typically runs from July 1st to June 30th the following year, with tax returns due by October 31st, unless you are engaging a tax agent, then your deadline is extended to 15th May. Late lodgement of tax returns may result in penalties and interest charges, the amount of which depends on the length of the delay and any tax owed. Penalties can reach up to 75% of the tax owed, in addition to interest charges. It’s crucial to lodge your return promptly to avoid additional charges. If you’re struggling to meet your tax obligations, we recommend you contact us or the Australian Taxation Office to explore your options.

In addition to income tax, Australians may also be required to pay other taxes, such as the Goods and Services Tax (GST), which is a value-added tax applied to most goods and services sold in Australia.

Taxpayers with foreign income need to be aware that the specific differences between Australian income tax and foreign income tax depend on the country and its tax laws. Circumstances that may impact your taxable income estimate are outlined here. You should always consult a qualified accountant or tax professional for guidance on your specific tax situation.

As Chartered Accountants specialised in taxation and compliance laws, our role is to assist individuals in managing their tax obligations and minimising their tax liability. We are equipped with a comprehensive understanding of tax laws and finance and can provide tailored advice and guidance on various financial matters.

What documents to provide for your tax preparation

To prepare Australian income tax for an individual, we would typically need the following information:

• Your personal details, including name, address, tax file number (TFN), and date of birth.
• Your income details, including details of all the income earned by you during the financial year, such as salary and wages, interest, dividends, rental income, capital gains, and any other income earned.
• Deductions: this includes details of all the deductions that you are eligible for, such as work-related expenses, charitable donations, and other deductions.
• Investment details: this includes details of any investments made by you, such as shares, property, and other assets.
• Superannuation: this includes details of any superannuation contributions you made and any superannuation benefits you received.
• Health insurance: this may include details of your private health insurance and costs.
• Other relevant information: this may include details of any government benefits received and any debts owed to the Australian Taxation Office (ATO).

For your investments, we may also need to prepare a capital gains tax (CGT) and would typically require the following additional details:

• Your asset details: this includes details of the asset or assets that were sold during the financial year, such as shares, property, or other investments. We will need to know the date the asset was acquired, the purchase price, and the date and price it was sold for.
• Capital gains and losses: this includes details of any capital gains or losses that arose from the sale of the assets. We will calculate the capital gain or loss by subtracting the cost base* from the sale price.
• Deductions: this includes details of any deductions that you may be eligible for, such as brokerage fees, stamp duty, legal fees, and other expenses incurred in the process of buying and selling your asset.
• Offsetting capital losses: if you have incurred capital losses in previous years, we may be able to offset these losses against their capital gains for the current year. In that case, we will need to know the details of any previous capital losses, and how much of these losses can be applied in the current year.
• Other relevant information: this may include details of any government grants or incentives received in relation to your asset.

Once we have all the relevant details, we can prepare your income tax return and submit it to the ATO. Please be aware that the ATO has strict deadlines for lodgement of tax returns and failure to lodge on time can result in penalties and interest charges.

In addition to preparing and lodging your tax return, we will provide advice and guidance on tax planning and strategies to minimise your tax liability. Please speak to us today to explore tax minimisation strategies relevant to your circumstances.

* The cost base is the amount of money that you have invested in an asset, including the purchase price and any associated costs of buying the asset, such as legal fees or stamp duty.

When it comes to taxation, there are many factors to consider, including whether your country has a tax treaty with Australia. Australia has signed tax treaties with several countries, including New Zealand, China, the United Kingdom, the United States, Canada, Israel, India, and Russia. These agreements are designed to prevent double taxation and make it easier for businesses and individuals to operate across borders. For example, if you are a resident of the United States and you earn income in Australia, you may be subject to taxation in both countries. However, because of the tax treaty between the United States and Australia, you may be able to claim a credit for the Australian taxes you paid on your U.S. tax return. This helps to ensure that you don’t end up paying more in taxes than you should. So if you’re planning to do business or earn income in one of these countries, it’s important to understand the tax implications and whether there is a tax treaty in place that can help you avoid double taxation. To see the full list of countries with which Australia has tax treaties, visit the Australian Taxation Office website.

Australian income tax and foreign income tax differ in several ways. Here are some of the main differences and factors that may impact your taxable income in Australia:

1. Tax residency: the way your foreign taxable income is calculated depends on your tax residency, which categorises you into either an Australian resident for tax purposes or a foreign or temporary resident for tax purposes. Speak to us if you need help working out your tax residency.
2. Tax rates: the tax rates and thresholds for Australian income tax are different from those of foreign income tax. The Australian tax system is progressive, meaning that as your income increases, so does the percentage of tax you pay. Foreign tax rates may also vary depending on the country and its tax laws.
3. Taxable income: the definition of taxable income may vary between countries. Generally, in Australia, taxable income includes income earned from all sources, both in Australia and overseas. Foreign tax laws may only tax income earned within their jurisdiction, so income earned overseas may not be taxed in the foreign country.
4. Deductions and credits: the deductions and credits that can be claimed on Australian income tax returns may be different from those of foreign income tax returns. Some expenses may be deductible in one country but not in another.
5. Reporting requirements: Australian tax laws require residents to report their worldwide income, while foreign tax laws may only require reporting income earned within their country. This can lead to double taxation if not appropriately managed.
6. Tax treaties: Australia has tax treaties with many other countries that provide relief from double taxation. These treaties may provide a credit for foreign taxes paid or exempt certain types of income from taxation.
7. Compliance requirements: the compliance requirements for Australian income tax are different from those of foreign income tax. For example, Australia requires tax returns to be lodged annually, while some foreign countries may only require returns to be filed every few years.

It’s important to note that the specific differences between Australian income tax and foreign income tax may vary depending on the country and its tax laws. Speak to one of our foreign income tax experts for professional guidance on your specific tax situation.

The cost of preparing and lodging a tax return can vary depending on several factors such as the complexity of the return, the type of income earned, the deductions claimed, and the tax professional’s fees. The cost can range from a few hundred dollars to several thousand dollars. 

For instance, a simple tax return for an individual who earns income from a single job and claims standard or basic deductions such as charitable donations may require less time and documentation to complete. This type of tax return typically costs around $100 plus GST.

In contrast, a self-employed individual with multiple income streams, including rental properties and various business expenses such as travel, office supplies, and equipment purchases, may require a more detailed tax return. Additionally, contributions to a self-managed superannuation fund (SMSF) could add further complexities, which require additional reporting and compliance measures. Such a tax return may require thorough documentation, calculations, and multiple consultations with us to ensure compliance with all relevant tax laws and regulations. The cost of such a complex tax return can range from several hundred dollars to several thousand dollars. 

To ensure that you receive the best value and price based on your unique tax situation, we highly recommend speaking to one of our accountants for a personalised quote. We believe that every tax situation is different, and our team of experienced professionals can provide tailored solutions that cater to your specific requirements. So, no matter the circumstances, we encourage you to contact us directly to receive a personalised quote for our tax services.

Regardless of the level of complexity, our tax return services come with personalised advice aimed at promoting financial stability and helping individuals achieve the financial freedom they desire. We take pride in providing exceptional tax services that cater to your specific needs. Contact us today to schedule an appointment, and let us help you make the most out of your tax returns.