Tax for Australians For Dummies
Everyday Australian tax issues don’t have to be complex and difficult to understand. Coming to grips with core taxation concepts like marginal tax rates, tax offsets, capital gains tax, superannuation and common deductions for both share investors and property owners not only enables you to build your tax knowledge but also helps you make the most of tax-effective investments.
Australian Tax Rates 2013–14
For resident individuals in Australia, tax is levied on worldwide income on a progressive basis, referred to as marginal tax rates. Your marginal tax rates (shown in the following table) can vary between 0 per cent and 45 per cent. The more income you earn, the greater the amount of tax you’re liable to pay.
|Taxable Income||Marginal Tax Rate|
A company is a separate legal entity and the company tax rate is 30 per cent.
The Medicare levy is used to help fund the Australian health system and the rate is 1.5 per cent of your taxable income. The Medicare levy surcharge applies if you don’t have private health insurance and taxable income is above the following thresholds:
Single person $88,000
The Medicare levy surcharge increases (in stages) to 1.5 per cent if you’re an individual earning more than $136,000, or couples/families earning more than $272,000.
The family threshold for the Medicare levy surcharge increases by $1,500 for each dependent child after the first child.
Tax Offsets in Australia
When figuring taxes in Australia, you can use tax offsets to reduce your tax payable. You can’t use tax offsets to reduce the Medicare levy liability.
Ordinarily, you can’t have unused tax offsets refunded back to you. The three exceptions are
Baby bonus tax offset
Franking credit tax offset
Private health insurance rebate
Eligibility for the low income tax offset is applicable to low income resident individuals, as shown in the following table.
|Maximum tax offset||$445|
|Taxable income threshold||$37,000|
|Taxable income upper limit||$66,666|
Residents born before 1 July 1957 receiving net income from working are eligible to receive the mature age tax offset. The maximum tax offset is $500.
Common dependant tax offsets include spouse, child-housekeeper, invalid relative and parent/parent-in-law.
You can claim a franking credit tax offset if you receive a dividend that's franked. Unused franking credits can be refunded to you.
Capital Gains Tax in Australia
If you sell things like shares, real estate, works of art, or other assets that you acquired after 19 September 1985, you may be liable to pay capital gains tax. Here’s what you may have to pay as part of your Australian taxes:
Assets held less than 12 months: 100 per cent of gain assessable
Assets held more than 12 months: 50 per cent of gain assessable
Main residence and car: Exempt from capital gains tax
What Superannuation Means in Australia
Superannuation is a scheme to help you fund your retirement. Monies invested can’t be accessed until you satisfy a condition of release, such as when you retire. Some of the Australian superannuation rules are covered here:
Super Government Co-Contribution Scheme. To qualify for this government freebie:
Your assessable income must be less than $33,516, for a maximum benefit of $500 for 2013–14 tax year.
If your assessable income is more than $48,516, you can’t qualify.
Concessional contributions are tax deductible:
For the 2013–14 tax year the maximum concessional contributions that qualify for a tax deduction depend on whether you’re under or over 60 years of age.
If you’re under 60, concessional contributions up to $25,000 are tax deductible, and if you’re over 60, concessional contributions up to $35,000 are tax deductible.
(Note: From 1 July 2012 if you earn more than $300,000 and you make a concessional contribution, the rate of tax payable on this contribution increases from 15 per cent to 30 per cent.)
Non-concessional contributions don’t qualify for a tax deduction:
If you’re under 65 years, you can contribute a maximum of $150,000 a year or $450,000 over three years.
If you’re 65–74 years, you can contribute a maximum of $150,000 and you must satisfy an employment test.
Pensions from most super funds are taxed as follows:
If you’re 55–59 years and receive a superannuation pension, your pension is taxed at your marginal rates plus the Medicare levy, minus 15 per cent tax offset.
If you’re 60 years and above and receive a superannuation pension, your pension is tax free.
Common Australian Tax Deductions for Share Investors
If you’re a share investor, to qualify for a tax deduction with respect to dividend payments, a direct and relevant connection must exist between the expenditure you incur and the dividends you receive.
Here are some examples of the types of expenditure that meet this key test in Australia:
Interest on borrowings to buy shares that pay dividends
Internet access costs incurred for share trading
Newspapers and journals that provide information to manage a share portfolio
Travel expenses to consult with a stockbroker or attend a company annual general meeting
Common Tax Deductions for Australian Property Owners
If you invest in real estate in Australia, you may be eligible for tax benefits. Here are some examples of the types of expenditure that are tax deductible:
Advertising to find a tenant
Depreciation on plant and equipment
Interest to finance the purchase of rental property
Repairs and maintenance
Water and sewerage charges