Your first tax return

Tax basics

If you earn income you will probably pay tax. Understanding how income tax works and how to do your tax return can help you sort out your finances at tax time.

What is tax?

Tax is the money we pay to the governments; the federal government, state and territory governments and local governments.

The governments use tax revenue to pay for public goods and services we use every day including health and community services, national defence and public education, as well as infrastructure like roads and railways. These contribute to the wellbeing of all Australians.

Your tax file number

If you work or receive a Centrelink benefit you will need a Tax File Number (TFN). A TFN is given to you by the Australian Taxation Office (ATO) to manage your tax and super. Everyone gets their own TFN and it's yours for life.

If you need to get a TFN or you don't know what your TFN is contact the ATO.

How income tax works

If you generate income you will usually pay income tax on that money. Income tax is paid throughout the year as you earn income.

Usually your employer will deduct tax from each pay and send it to the Australian Taxation Office (ATO) on your behalf. This is known as Pay As You Go (PAYG) withholding. This is done so you don't have a big tax bill at the end of the year. You can see the amount of tax that has been taken out by your employer on your pay slip.

Your income tax may include the Medicare levy which pays for the public healthcare system.

When you complete your return the amount of income tax the ATO calculates you need to pay is assessed against the total PAYG withholding amount your employer has taken out of your pay throughout the year. From this the ATO determines if you will get a tax refund or need to pay a tax bill.

The ATO's online tools for lodging your return will calculate your tax for you. You just need to provide the ATO with the information they need.

Video: Will's tax return

Video about Will's tax return.

TAFE teacher Andrew explains how Will's tax will be calculated. Will is an apprentice who has been working for a year.

This video is from ASIC's Be MoneySmart online modules. You can do these online modules informally to learn how to make better decisions about your money or through a registered training organisation (RTO) and have it recognised as a Certificate III competency.

Transcript: Will's tax return

Assessable income

Smart tip

If you have more than one job you may be able to claim the tax free threshold from the job that pays more.

Assessable income is income that you must pay tax on. It includes your employment income, most government payments, bank interest and more.

The ATO has more information on income you must declare in your return.

Allowable deductions

Allowable deductions are subtracted from your assessable income to find your taxable income. These deductions reduce the amount of money the tax rates are applied to which can help reduce your tax. Common allowable deductions include:

  • self-education expenses
  • the cost of your uniform and laundry expenses for work
  • gifts and donations of $2 or more to an approved charity

Here are some simple rules about allowable deductions:

  • You must claim the deduction in the same financial year you made the purchase.
  • You can't claim an expense you have been or will be reimbursed for.
  • You must have written evidence of your purchase, such as a receipt.

There are a lot of different deductions that can be claimed. Take a look at the ATO's deductions you can claim webpage for more details.

Tax offsets

Tax offsets directly reduce the amount of tax you have to pay.

One common tax offset for part-time and casual workers is the low income tax offset. If your taxable income is below $37,000 you'll get the full $445 offset. If it is below $66,667 you will only get part of this offset. The ATO will automatically work out this offset for you when you lodge your return.

Try the ATO's low income tax offset calculator to see if you are eligible.

You can find out more about tax offsets on the ATO's offsets and rebates webpage.

How to lodge your return

Not all people need to lodge a return. To see if you do try out the ATO's online tool 'Do I need to lodge a 2015 year tax return'?

Video: Jono talks about tax lodgement and refunds

Jono talks about tax

Jono from ASIC's MoneySmart team answers a feedback question from MoneySmart user Monique on when her tax return needs to be lodged and how long it will take before she receives a refund.

Jono also talks about our top tax tips, income tax webpage and income tax calculator.

Transcript: Jono talks about tax lodgement and refunds

You can lodge your return online or via a paper form.

Most people under 25 lodge their return online. Lodging online is easy because the ATO pre-fills a lot of information and automatically calculates your tax for the year.

You can lodge your return online using mytax. You need a myGov account linked to the ATO to lodge online.

You can also fill out a paper form return from the ATO.

Video: Three do's for your return

A video about some things you should do when you prepare and lodge your tax return.

TAFE teacher Andrew explains the simple things you should do when you prepare and lodge your tax return.

This video is from ASIC's Be MoneySmart online modules. You can do these online modules informally to learn how to make better decisions about your money or through a registered training organisation (RTO) and have it recognised as a Certificate III competency.

Transcript: Three do's for your tax return

Important

If you are lodging your tax yourself, you need to lodge it by 31 October or you could face a penalty.

Your tax refund or bill

Once you lodge your return the ATO will send you a notice of assessment which will tell you if you have a tax refund or how much tax you need pay.

How Australians spend their tax refund

tax infographicMost Australians get a tax refund. Take a look at our tax refund infographic to find out the average refund and how people spend it.

Need a bit of help?

Many people choose to use an accountant or tax agent to do their tax return. Find out more about choosing an accountant.

If you do your own tax return make sure you are getting all the deductions and offsets you are entitled to.

Understanding how income tax works and how to do your tax return can help you sort out your finances at tax time.


Related links


Last updated: 07 Aug 2016