Cheat Sheet

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 2014–15

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.

Marginal Tax Rates 2014–15
Taxable Income Marginal Tax Rate
First $18,200 Nil
$18,200–$37,000 19%
$37,001–$80,000 32.5%
$80,001–$180,000 37%
Over $180,000 45%

The federal government has set a Temporary Budget Repair levy on high income earners to help reduce the federal budget deficit. For the 2014–15 tax year, you're levied 2 per cent of your taxable income if you earn more than $180,000 per annum. This levy is to apply up to 30 June 2017 and effectively increases the top marginal tax rate from 45 per cent to 47 per cent.

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 disability care insurance scheme 'DisabilityCare Australia'. The rate is 2 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 $90,000

  • Couples/families $180,000

The Medicare levy surcharge increases (in stages) to 1.5 per cent if you're an individual earning more than $140,000, or couples/families earning more than $280,000.

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 two exceptions are

  • 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.

Low Income Tax Offset in Australia
2014–15
Maximum tax offset $445
Taxable income threshold $37,000
Taxable income upper limit $66,666

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 $34,488, for a maximum benefit of $500 for 2014–15 tax year.

    • If your assessable income is more than $49,488, you can't qualify.

  • Concessional contributions are tax deductible:

    • For the 2014–15 tax year the maximum concessional contributions that qualify for a tax deduction depend on whether you're 49 years or over on 30 June 2014.

    • If you're not aged 49 years or over on 30 June 2014, concessional contributions up to $30,000 are tax deductible, and if you're 49 years or over on 30 June 2014, 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 $180,000 a year or $540,000 over three years (known as the 'bring forward' option).

    • If you're 65–74 years, you can contribute a maximum of $180,000 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 expenditures that are tax deductible:

  • Advertising to find a tenant

  • Agent's commission

  • Council rates

  • Depreciation on plant and equipment

  • Insurance premiums

  • Interest to finance the purchase of rental property

  • Land taxes

  • Repairs and maintenance

  • Water and sewerage charges

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