Tax return: Simplified

As published on www.cashdoctors.com.au by Greg Ellis on 14 July 2011

It’s that bitter sweet time of year.

Tax time.

Doing your tax return can be a pain. It’s confusing, they use complicated terms and ask too many questions.

Ever come to a question and you weren’t sure whether to select ‘yes’ or ‘no’? So you just selected ‘no’ and hoped you were right?

So have I. And now it’s even more important to know what all those questions mean with eTax. Doing your tax return online using eTax (ATO’s online tax software) is great. Super convenient and fast. Be careful though, this software won’t tell you if you’ve forgotten to claim something so it’s really important you know what the questions are asking.

Don’t worry, after reading this you’ll answer all those tax questions with confidence.

On the weekend I put together an FAQ-style guide to help you with your tax return. It’s quite a hefty guide so just jump to the questions you are interested in.

1. Tax?

You are taxed by the tax office every year. The more you earn, the more you get taxed. Tax brackets are used to divide people’s earnings into groups, so they can be taxed accordingly. The tax brackets for 2010-11 are:

Income Tax on this income
0 – $6,000 Nil
$6,001 – $37,000 15c for each $1 over $6,000
$37,001 – $80,000 $4,650 plus 30c for each $1 over $37,000
$80,001 – $180,000 $17,550 plus 37c for each $1 over $80,000
$180,001 and over $54,550 plus 45c for each $1 over $180,000
(Source: ATO)

It’s our understanding that if you earned less than $6000 last financial year you have nothing to worry about. If you earned a little more than that (between $6000 and $37,000) you get taxed (so your employer takes a cut out of your pay cheque every payday). In this particular tax bracket you’ll be taxed 15 cents for every $1 over $6000. Say you earned $7000, you would be taxed 15cents * 1000 = 15000 cents = $150 dollars. So you only actually took home $6850 for that year. The government took $150 to build roads, bridges and pay the stop-sign man.

2. What is eTax and what do I need to get started?

It’s a way of submitting your tax return online. It takes approximately 14 days to receive your notice of assessment via this method (which either tells you that you owe money or that you will be receiving a refund). You will need:

  • Access to a PC (personal computer), not a Mac
  • A notice of assessment (the receipt from last year’s tax) or you can verify your identity with: Tax file number, name, date of birth and a unique question (personal information an organisation has provided to the tax office in the last 2 years).

Remember that your tax return is due by the 31st of October (of this year). Check out a quick demo video of eTax.

Why should you use it? It’s convenient and quick. It uses a pre-filling function, drawing upon information sent from your employer, Centrelink, banks, etc, to save you a bunch of time.

3. Tax offset vs. Tax deduction

A tax offset will reduce the amount of tax you are required to pay to the government. For example, you could receive a tax offset if:

  • You live in a rural area
  • You are a senior
  • You are a mature aged worker

There are 3 refundable tax offsets (so you receive the rebate whether or not you owe any tax)

  1. Private health insurance rebate
  2. The franking tax offset.
  3. Baby bonus

A tax deduction is something you can claim if you spend money (out of your own pocket) to assist you in earning an income. For example, and depending on your job:

  • Uniforms
  • Using your personal car for work trips, attending conferences, going between offices
  • Sunglasses (if you have a job that requires you to work outside in the sun)

Keep in mind that you can claim up to $300 worth of tax deductions without receipts (proof of purchase), once your deductions exceed $300 you need to show receipts.

4. How much tax do I get back?

Your employer withholds tax from your pay each payday, and gives it to the government. This is a basic method of working out how much you get back at tax time (or how much you have to pay).

All you need is:

  • Your income earned last financial year (on your PAYG payment summary)
  • The amount your employer withheld (on your PAYG payment summary)
  • A tax calculator to work out how much you are required to pay.

Once you have those figures, pop them into this tax refund calculator.

(If it’s a negative number, that’s how much you have to pay the tax office).

5. What’s the deal with all the medicare questions?

There are two things you need to know. Firstly, there is a Medicare Levy. This is a tax you pay so that Australia can provide health care. It’s 1.5% of your taxable income. You are exempt if you earned less than $18,488 last financial year. You also only pay part of the levy if you earned between $18,488 and $22,163.

Then, there is the Medicare Levy Surcharge. This is charged if you do not have private health insurance and…

  • Are single and earned more than $77,000 last financial year.
  • Are a family or couple with a combined income of more than $154,000 last financial year

6. Do I have to pay the flood levy?

After the floods in QLD this year, the government has introduced a flood levy. This is basically a tax to help rebuild after the damage caused. The table below tells you how much you have to pay. If you received the disaster relief package, you are exempt from the tax.

Income Flood levy on income
$0 to $50,000 Nil
$50,001 to $100,000 Half a cent for each $1 over $50,000
Over $100,000 $250 plus 1 cent for each $1 over $100,000

Use a flood levy calculator if you are having trouble working it out.

7. Fringe benefits tax is not a payment to your hairdresser.

A fringe benefit is basically any right, privilege, service or facility provided to you by your employer that is outside your salary, superannuation and termination payments. For example, a company car. It is something that is paid by your employer so unless you receive fringe benefits it’s not something you need to worry about.

8. Claiming work related expenses

Remember: The more you claim, the less tax you pay. Personal Tax Specialists have a list of work related expenses you can claim for each industry. You can claim for up to $300 worth of deductions without receipts, once you exceed this amount you need proof of purchase (it’s time to dig out all those receipts!).

When claiming for car expenses remember that you can only claim things that are work related. For example, it may include:

  • Attending meetings
  • Conferences
  • Training courses
  • Picking up supplies, equipment or tools
  • Traveling between job sites or office locations

9. If it all gets too much…

If you think you’ll need some help with your tax return (maybe you own an investment property, own your own business or have some more complicated costs to claim) book in with an accountant. Just make sure they are registered.

Our friends at the Personal Tax Specialists have offered to help out Cash Doctors’ members – make sure you get the most out of your tax return. We’ve managed to twist their arm for a bit of a discount.

Personal Tax Specialists will give every new client who joins them before 31st August 2011 a $25 credit to be used towards your 2011 tax return fee. To take advantage of this special offer, click here and complete the New Client Form today and mention that ‘Cash Doctors’ referred you. (Note – there is a limit of one $25 credit per client).