Everyone loves to get a tax refund, and the bigger the refund, the bigger the bragging rights at the next BBQ.
A Guide to How it works (Basic wages)
If you are on wages, you would be getting Tax Withheld by your employer every payday. The amount of tax withheld is based on the ATO guidelines, and depends on whether or not you are claiming the Tax Free Threshold .
Your income from all taxable sources is added together to form your Gross income . This commonly includes wages/salary, interest, dividends and taxable centerlink payments.
Your Allowable Work related deductions are then taken off this amount which leaves you with your Taxable income .
Your taxable income is the amount on which you need to pay tax (according to the charts below). At this stage the amount payable is pre-determined for the income regardless of your employment. For example, a nurse with a taxable income of $30000 will need to pay the same amount of tax as a Miner with a taxable income of $30000. Remembering that the work related deductions for each person has already been deducted from the income.
Tax Calculation Example:
In the 2013 tax year the amount of tax payable on $30000 would be worked out as follows:
The first $18200 would be tax free
The remaining $11800 would then fit into the next tax bracket of 19% which would be an amount of $2242.
Please Note: This does not allow for any offsets (Your accountant will allow these if applicable)
In this situation the tax payable would be $2242 (0 + 2242). If the amount of tax withheld from your wages is more than the amount of tax payable, there will be a tax refund. If the amount withheld is less then there will be an additional bill.
The more extra tax you pay throughout the year the more refund you will receive. The less amount of extra tax you pay the lower the refund or higher the bill if there is a shortfall.
mate got a bigger refund than me?
Work related deductions are out of pocket expenses you have incurred to complete your job.
There are a lot of rules to determine whether they are allowable and the rules are constantly changing. This becomes most commonly talked about when it comes to 'the BBQ chats' on tax refunds. This is where the experts come out of the woodwork.
There are some beliefs that because a deduction was claimed and the refund was received that it is allowable. This is not always true – a majority of tax returns are completed automatically by the ATO computer on an honesty system. Some are randomly picked to be processed manually, and if an error is picked up they may then look at previous returns. In some cases this may lead to a full audit.
This is where you need a tax accountant who has the training and knowledge, and is up to date with the constant changes in tax law to avoid potential future problems, and to ensure you are claiming everything you are entitiled to, and not claiming things you are not entitled to.
All of the accountants at Save on Tax are University Degree qualified and have extensive training to ensure they are up to date with current tax laws.
Tax withheld – The amount of tax taken out of your wages by your employer ( these amounts are sent to the ATO on your behalf by your employer)
Tax free threshold – the amount of income you can earn before paying tax. This amount should only be claimed on one job.
Gross Income – the total amount of your income (normally from wages and Interest)
Taxable Income – is your income less allowable deductions. This is the amount that you need to pay tax on at a pre-determined rate (see table below)
Individual income tax rates
These rates apply to individuals who are Australian residents for tax purposes (see Residency - what you need to know for more information).