What is tax?
It’s not the most fun subject to talk about, but it’s an important one – tax. If you’ve got yourself a part-time or casual job, even if you’re still at school, chances are you’ll need to know about tax.
But what even is tax? Think of it this way. Tax is a small amount of money that gets taken off your pay. The government uses this money to provide important services and infrastructure, like roads, hospitals, and even schools – tax improves our quality of life. This means we can access services like Medicare for free, instead of having to pay every time we need to go to the hospital or doctor.
Do I need to pay tax, and how?
If you have a job, the short answer is yes, you probably need to pay tax.
You need to pay tax on your income once you make more than $18,200 a year (this works out to roughly $350 a week). Remember that this is combined income – so if you have more than one job, even if you earn $10,000 at one and $12,000 at the other, if it’s more than $18,200 combined you will need to pay tax. There are also some other things that count towards your income total, such as investments and some government payments. See the full list of things you need to declare as income here.
Thankfully, paying tax easy – you don’t even have to do anything. Your employer should automatically pay tax on your behalf. If you get a payslip, you should be able to see how much tax comes out of each pay. This is called “Pay As You Go” (PAYG) tax, and unless you work for yourself, this is how you will pay your tax. So don’t stress!
So what do I need to do?
Tax File Number
Before you get your first job, you will probably be asked to get a Tax File Number (TFN). This is a unique number that stays with you for life that the government uses to keep track of your income, superannuation and debts (such as HECS-HELP).
You don’t technically need a TFN to start working, but you’ll pay more tax if you don’t have one, and you won’t be able to access any government benefits. But getting one is easy and totally free, so there’s really no excuse not to.
Once you’ve got your TFN, simply give it to your employer, and voilà – that’s really all you need to do.
At the end of every financial year (which ends in June, not December), if you’ve been paying tax, you’ll need to lodge something called a tax return.
Lodging a tax return adds up your income for the year, and then the government checks how much tax you’ve paid. If you paid more tax than is due, you’ll get some money back. If you paid less, you’ll have to pay the extra. Most people tend to get a small return each financial year. You’ll need to lodge your tax return before 31 October each year.
The best part about using myTax is that most of the information is already prefilled for you. Your employer sends your income info to the ATO so you don’t need to.
If you’re finding the whole process too confusing, you can also visit a registered tax agent and they can lodge a tax return for you on your behalf. But keep in mind you’ll need to pay a fee for their service.
How do I lodge a tax return?
If you do lodge your own tax return, there are a few general steps to follow:
- Declare all your income. You will need to fill in any money you earned throughout the financial year. Don’t forget, this can include things like government payments and interest. Most of this information should already be prefilled for you. If your employer has sent you a payment statement, double-check to make sure the figures in your tax return match the statement.
- Claim any deductions. If you have any work-related expenses, you can claim their cost as a deduction and receive some of the cost back. These can include things like uniforms and laundry costs, tools, travel expenses, and other things. They must be relevant to your work, and you can’t have been reimbursed by anyone for them (for example, if your employer pays for your tools on your behalf, you can’t claim them as a work-related expense). You will also need to keep a receipt or record of purchase. This step is totally optional, but it can be nice to get some money back. But be careful when claiming deductions, because if you get it wrong you may have to pay some money back. Read up thoroughly on what you can and can’t claim as deductions first.
- Submit! Triple-check all of the values you’ve entered, then submit your tax return. You should hear back from the ATO in around 2 weeks, and they’ll tell you whether or not you can expect some money in the bank, or whether you owe them.
Why do I need to lodge a tax return?
You will need to submit a tax return every financial year, as long as you are earning money. It’s important to make sure you submit it on time each year, or you might be missing out on some extra money you could get back. Even worse, if you owe money, not knowing and not paying could land you in hot water down the track.
Want to know more?
Staying on top of your finances can save you from future headaches, and can sometimes come with the bonus perk of a few extra dollars in your bank account.
If you want to find out more about money, we have heaps of resources on budgeting, superannuation, and more on the Study Work Grow website.