Thinking about tax can be … taxing (see what we did there!) – but it is a vital topic to wrap your head around, especially as you enter the workforce.
Even if you’ve found a casual or part-time job, or maybe you’re even picking up some freelance gig work and earning a little side income – chances are you’ll need to consider if you need to pay tax and how much.
For the next instalment of our Explore Careers Money Management Guide, we’re tackling the topic of tax. Let’s get stuck in!
First Things First: What Even Is Tax?
When you earn an income, you’ll begin contributing towards tax.
This is a sum of money deducted from your pay that goes towards supporting essential services in our communities, including:
- Schools and education
- Hospitals and healthcare, such as Medicare
- Roads and infrastructure
- Emergency services, like fire services, ambulances, and police.
The amount of tax deducted from your pay depends on how much you earn. Tax brackets are set across different pay scales, so if you earn more, you’ll pay a higher percentage in tax.
Think of it as the contribution you make towards maintaining a functioning, healthy society that we all need to use at some point.
Should You Be Paying Tax?
Once you start work, you will likely have to pay taxes.
Tax is deductible from your earnings once you earn over $18 200 a year. This equates to around $350 a week – and that’s an accumulative amount.
So, if you have a couple of small jobs or casual work you take on over the summer, you’ll need to pay tax if the total you earn is over this amount. So, even if you’re just mowing lawns and helping your neighbours with other odd jobs, if you’re earning money from this, you should declare it for tax purposes.
Other things that contribute towards income include:
- Any investments you might have
- Any government payments
- Any income from winning awards
- Some financial grants
It’s best to declare everything you earn when you file your tax return each year, so the tax office can accurately assess what you owe.
You can find a complete list of things you need to declare as income here.
How Do You Pay Tax?
The good news is that paying taxes is – for the most part – really easy!
When employed, your employer automatically calculates and makes payments towards your tax on your behalf. When you receive a payslip, there will be a section that advises ‘Pay As You Go’ (PAYG) – this is how much tax your employer has paid for you.
When it comes to filing your tax return, all you have to do is check that all of your personal details and employment information are correct, declare any other income you might have earned, and submit!
In some cases, you may have paid too much tax, so you’ll receive a refund (yay!).
In other cases, you may have paid too little tax, and you’ll be given an invoice for how much you need to pay (boo!).
If you work for yourself, you won’t automatically pay tax, so it’s important that you set aside a percentage of your income each time you earn some to pay towards any tax you may owe when you file your annual tax return.
How Does the Tax Office Know How Much Tax You’ve Paid?
When you start work, your employer will ask you for your unique Tax File Number (TFN).
Your TFN stays with you for life, and you’ll need to provide it to every employer you work with so that they can attach the contributions they pay on your behalf to you. The government will use this number to track your income, superannuation and any governmental debts you accrue (such as HECS-HELP, the student loan that helps support your university tuition fees).
Without a TFN, you will be charged a higher percentage of tax and won’t be able to access government benefits or HECS-HELP.
You don’t need a TFN before starting work, but if you want to be organised, applying for one is very easy.
What is a Tax Return?
Once you start paying taxes, you’ll need to lodge your tax return at the end of each financial year. In Australia, the financial year ends in June – not December (just to be confusing!).
Tax returns need to be submitted by October 31st each year.
When you’re just starting, filing your tax return is super easy. You can use the Australian Taxation Office’s (ATO) free myTax tool, where most of your information is prefilled. You’ll simply need to check all the information is correct and submit it.
When submitting your tax return, make sure you:
- Declare ALL income: If your employer has been paying your taxes for you, this will be prefilled, but if you have earned some extra, you’ll need to input this, too, so your tax calculation is accurate.
- Claim any deductions: You can claim certain work-related expenses, which helps to bring down your taxable income. Basically, anything money you have spent related to work can be claimed, including buying uniforms or PPE and having them dry cleaned, tools, travel expenses, and meals if you have had to travel away for work. Keep all receipts for work-related expenses, and check what you can and can’t claim as deductions first.
- Double-check all details before you hit submit: Check over everything before you hit submit and ask a parent or trusted adult to help you if this is the first time you’re lodging your tax return. You should hear back from the ATO in about two weeks on the outcome of your return.
Taxes: They Don’t Have to Be Taxing!
And that’s it!
As you earn more or try your hand at freelancing, there will be other things to learn and know about taxes and maximising your income, but you can learn these things as you go.
When you’re just starting, the best thing you can do is get your head around the basics, get a comfortable understanding of what tax you need to pay and lodging your tax return.
Tax doesn’t have to be taxing, and the more you invest in your knowledge in this area, the more benefits you’ll reap! Keep your eyes peeled for more from our money management series coming in the future!
