Understanding the Australian Income Tax System

Income tax is the most significant stream of revenue in the tax system, it consists of three main pillars:

• Personal earnings
• Business earnings
• Capital gains

Income tax is applied to an individual’s taxable income and is paid on all forms of income. This includes wages from your job, profits from business and returns from investments. Income tax can also apply to assets such as when a house or shares are sold.

Taxpayers with two or more jobs or other taxable income sources should be aware that they may be caught in an unintentional tax trap as a result of the tax free threshold.

Australia has a progressive tax system, which means that the higher your income, the more tax you pay.

You can earn up to $18,200 in a financial year and not pay tax. This is known as the tax-free threshold and after which, the tax rates kick in.

Tax rates for residents in the 2023/24 and the 2024/25 year are (Note: these rates do not include the Medicare levy):

For the 2025 year, the lowest rate is 16% and the highest rate is 45%, which is only charged on income over $190,000. Most Australians sit in the middle bracket.

You are also taxed on superannuation contributions and earnings, and there are several tax benefits to paying money into your fund.

Tax rates for foreign residents for the 2023/24 and the 2024/25 year are:

Most working holidaymakers (visa types 417 and 462) pay 15% on all income up to $45,000 then resident rates on all income from $45,001 onwards. However, working holiday makers who are residents of Australia for tax purposes and from a country that has a non-discriminatory clause (NDC) in their double tax agreement with Australia will be taxed at ordinary resident tax rates. Countries that have a NDC in their doubletax agreements are Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany and Israel.

Lodging your tax return can be done anytime after June 30 and the absolute deadline for self-lodgement is the 31^st October. Whilst there is the option to self lodge, it is best to go through a tax agent such as H&R Block, to ensure everything is filled out correctly and you receive the best return possible in a timely manner.

In order to ensure the lodgement process is as smooth as possible, make sure you have all your important documents together before coming in for your appointment or lodging online. Filing away important receipts, invoices and documents throughout the year will save you a lot of time when it comes to completing your return. It’s also important to ensure all your details are up to date. If you’ve moved or changed your name, these details need to be updated with the ATO. Minor errors like these can hold your return up for weeks or even lead to fines.

If you're retired or have access to your super fund, it is important that you are fully aware of your tax obligations. People of different ages have different levels of obligations when it comes to tax on superannuation withdrawals.

Tax deductions are expenses that you have incurred during the financial year for work purposes. Overall, tax deductions reduce taxable income and are often the reason why people get a tax refund.

Any money spent as part of your work is tax deductible. If you spent money on something to allow you to do your job you are entitled to claim that cost as a deduction. For example, travel expenses for work purposes or the cost of uniforms. If you use your personal laptop, desktop, tablet or phone for work, you can claim a deduction for work-related use of the device. Below are a list of tax tips to help you understand tax deductions:

• The Ultimate Guide to Tax Deductions in Australia
• Claiming a tax deduction for work clothing
• Living Away from Home Allowances
• Claiming Car Expenses as Tax Deductions

It is important to remember to only claim what you’re entitled to. Private expenses or any costs that were reimbursed by your employer cannot be claimed. Claiming what you’re not entitled to can lead to fines and a stressful audit by the ATO.

If you’re unsure of what you can and can’t claim, contact your nearest H&R Block office for further information.