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One of the key determinants of how much income tax you pay, and how much you get back as a refund depends on how well you’ve maximised the deductions you're entitled to claim. Some people are better at this than others, which explains why the amount paid in tax, based on tax rates alone, isn’t a level playing field.
Most of these deductions relate to what the Australian Tax Office (ATO) deems to be claimable out-of-pocket costs, incurred on the job that your employer hasn’t already covered you for. But remember to retain all your receipts.
What you’re entitled to claim as a legitimate work-related deduction can depend on many factors. But generally speaking, key criteria for deductibility tend to be around things like: travel, special clothing you’re required to wear at work, phone and internet costs, tools and other gear used on the job. Then there’s a plethora of additional job-related expenses you can also claim back, including certain training costs, fees for regulatory compliances or subscriptions/memberships to professional bodies or unions.
1. Other key determinants at the personal level
However, the above-mentioned ‘deductibility’ is only half story when it comes to explaining why co-workers, earning the same income, can end up paying different amounts of tax. Drill down below these work-related expenses, and there’s another layer of variables that directly impact the tax people pay. How Australians are impacted by provisions – tax breaks and concessions – within the tax system are generally determined by their own individual circumstances.
Given that the criteria for determining these provisions is subject to a complex set of ATO guidelines, those in doubt should seek early guidance of experienced industry professionals.
2. Some of the key measures relate to:
Occupation: The rules for claiming deductions differ between employees and independent contractors. There are also special rules for people who earn personal services income.
Employment status: Whether you’re an employee working part or full-time, or self-employed can impact how much tax you pay.
Marital status and number of dependants: Specific tax treatments relate to anyone with a spouse, while family tax benefits help those raising children.
Government benefits: A beneficiary tax offset is available if you received certain Australian Government allowances and payments.
Financial activity: There are tax rebates for making a personal contribution to your super or by adding to your spouse’s fund before the end of the financial year. Specific tax considerations also relate to investors. But given the complexity associated with buying and/or selling assets, having a professional correctly review the appropriateness and timeliness of your strategy can be highly beneficial. There are also tax benefits associated with taking out income protection insurance. Having hospital cover, can also if you earn more than $90,000 (singles) or $180,000 (families and couples), help you avoid the Medicare Levy Surcharge (calculated at the rate of 1% to 1.5% of your income).