As an Australian resident taxpayer, you will be entitled to an $18,200 tax-free threshold. This means that you do not pay tax on the first $18,200 you earn from all of your sources of income.
And if you earn less than this amount overall for the entire year, you will not pay any tax at all.
So, in effect, the first $350 you earn each week, or $1,517 each month, is yours. You are only obliged to pay tax on what you earn over and above this.
It is all very straightforward for most taxpayers. But it can become complicated for those with more than one source of income. Read on for details of some of the problems that can occur and how we can help you avoid them.
Starting a new job
When you start a new post, you will complete the Tax File Number Declaration form. Question 8 on the form asks:
Do you want to claim the tax-free threshold from this payer?
You should answer YES to this question in order to declare the first $18,200 of your earnings from this post under your tax-free threshold.
If this is your one and only job, this should be all you need to do. Your employer will be aware of the Australian Tax Office (ATO) rates and withhold the appropriate sums from your salary to cover your tax obligations.
Two jobs – one tax-free threshold
But things can get tricky if you have more than one job.
You can only claim the tax-free threshold for one of your jobs. If you claim for more than one, the untaxed portion of your earnings will be too high and you will pay insufficient tax. At the end of the year, you will lodge your tax return and then be landed with a bill.
So, if you have more than one job, you should say YES to Question 8 on the Tax File Number Declaration form for just the higher paying of your jobs.
Your $18,200 tax-free proportion will apply to the salary from your primary job, and the lower earning work will be taxed at 100%. See the ATO individual income tax rates for a estimate of your tax burden on your second and subsequent jobs.
In this way, you can avoid the unintentional tax trap.
End of year refunds
At the end of the year, you will file your annual tax return and the tax office will calculate the difference between your tax burden and the sum deducted from your earnings during the year.
If you have overpaid, a refund will be sent to you. This refund can be a pleasant surprise, or you may find it has reduced since the previous year. Or, indeed, you may even be landed with a bill.
Where your salary has stayed the same but your refund has lessened, it is likely that your tax-free threshold was not properly taken into account. Unfortunately, this can occur even when employers and employees follow the ATO rules to the letter.
This occurs not infrequently where a taxpayer has more than one job, and each employer has thus been obliged to calculate the tax burden without full knowledge of the employee’s financial affairs.
Stay on top of your taxes
To minimise the possibility of an unwelcome tax bill or reduced refund, stay on top of your taxes.
Err on the side of caution when deducting tax from individual pay packets. You can ask your employer’s payroll department to deduct a larger proportion of your income in tax on a monthly/weekly basis.
Or take advice from a tax expert. There are many accountants in Sydney who specialise in tax affairs, and would be ideally placed to advise you. With details of your earnings and tax arrangements, a tax consultant could give you a clear estimate of your tax burden and allow you to take control and pay as you go.
Find accountants in Sydney using online reviews or word-of-mouth recommendations from your friends and family or colleagues.
Tax problems and financial difficulties
If the worst happens and you are hit with an unexpected bill that you are unable to pay, all is not lost! The tax return can be deferred until next year.
Cantor Accounting is one of the accountants in Sydney who can help. Cantor tax advisors can support you with the management of outstanding tax, help finalise your tax return, and work with you to improve your financial health for next year.
Contact the Cantor Accounting office and book an appointment to discuss your tax needs.