Individual Tax Return
What is an individual tax return?
Every year, individuals are required to declare their income in a tax return. For most people, much of this information is provided to the Australian Tax Office by their employers and related financial institutions, but there are some details which must be recorded manually.
When completing an individual tax return, you will need to ensure that the information listed is complete and accurate, regardless of whether or not it has been pre-filled by an employer.
There are some specific types of income which must be declared each year.
This is money which you have received as a result of your engagement in paid work. Regardless of how many jobs you have, and whether they are part-time, full-time, or casual, you need to ensure that all of your combined employment income is listed on your tax return each year.
Wages and salary
This is the most common type of employment income, and probably constitutes the bulk of your earnings gained through paid employment. For tax purposes, wages and salary includes:
• Your regular pay, whether it is monthly, fortnightly, weekly, etc.
• Parental leave pay
• Money earned for casual or part-time work
• Payments from
– An accident or illness insurance policy
– Income protection policies
– Workers compensation schemes
Allowances and other income
You might be receiving other payments in the course of your employment, including:
– Jury attendance fees
– Gratuities, tips, and payments for your services
– Payments for voluntary services, including consultation fees
– Allowances for expenses, including travel, car, clothing, laundry etc.
Some allowances, namely those for travel or overtime meals paid under an industrial award, agreement, or law, do not have to be included on a tax return so long as they meet ALL of the following requirements:
– It does not exceed the reasonable allowance amount set by the Commissioner.
– You spent the entire amount on tax-deductible expenses.
– The payment was not shown on your payment summary.
Lump sum payments
Commonly, there are two types of lump sum payments. If you leave a job, you may receive a lump sum payment which meets the value of unused long service or annual leave. Or, you may receive a lump sum payment in arrears, for money which your employer owes you from an earlier income year.
Both types of lump sum payments must be assessed and reported in the year which you receive them.
Super contributions and reportable fringe benefits
Other income related to your employment, such as fringe benefits and super contributions, must be reported so that the government can work out if you are eligible to receive tax offsets or other government benefits. You do not have to pay tax on these items.
Reportable fringe benefits are things given to you by your employer, such as a cheap loan, free health insurance, or a car which you can use for private purposes.
Reportable super contributions are those made by your employer on your behalf.
Government Payments, Annuities, and Super Pensions
If you received income from pensions paid to you as part of a super income stream, government payments, or annuities, you must declare them in your tax return.
For tax purposes, a pension includes regular payments made as part of a super income stream. This does not include government pensions like the age pension.
Generally, these pensions are payed out by:
– Australian super funds, retirement savings account (RSA) providers, or life insurance companies
– Funds established for the benefit of state, territory, or Commonwealth employees and their dependents. For example, the Public Sector Superannuation Scheme and the Commonwealth Superannuation Scheme
– Parties as a result of the death of another person, such as the death benefit income stream
What you need to declare
Super income stream payments are made up of different components. The following components need to be included as part of your tax return:
– Any part of your benefit on which tax has already been paid by the fund, these are known as taxed elements
– Any untaxed elements, which are the parts of your benefit still taxable
Some components may be tax free. You do not need to include tax free components on your tax return.
For tax purposes, an annuity is generally described as a regular series of payments made to you by a life insurance provider in exchange for a lump sum payment. Usually, annuities are made up of both tax free and taxable components.
When preparing your tax return, you are required to declare payments made to you by the Government – including the age pension, Austudy, youth allowance, Newstart, and carer payments.
Some types of government payment are exempt from income tax, but must still be declared on your tax return. This information will then be used to determine your eligibility for various government benefits or tax offsets.
Payments exempt from income tax include:
– Carer adjustment payments
– Child disability allowance
– Veterans’ Affairs disability allowances and pensions
– Disability support pension (if you are below the pension age)
Generally, you must declare investment income regardless of whether it is paid to you directly or made through distributions from a partnership such as a trust or share club.
As an Australian resident, you must declare interest as income if you are receiving it. Income from interest includes:
– Interest credited or paid to you by the ATO
– Interest earned from accounts held with financial institutions
– Interest earned from a child’s savings account if you operated or opened an account for a child and any funds in the account legally belong to you
– Interest from foreign sources (although you may be entitled to a tax offset for tax paid on this income)
– Life insurance bonuses (though you may be entitled to receive an offset equal to thirty percent of bonus amounts included as part of your income).
Dividends can be paid to you in the form of money or property, including shares. If you are credited or paid with shares, whichever company issues you the shares is required to provide you with a statement indicating if the shares qualify as dividends.
Usually, dividend income is paid from:
– Listed investment companies
– Corporate unit trusts
– Public trading trusts
– Corporate limited partnerships (as a distribution)
Some dividends have a franking credit, or imputation attached – this must also be declared on your tax return. If you have been paid any dividends which have been franked, you’ll usually receive a franking tax offset.
Any rent-related payments you receive or become entitled to must be declared in full on your tax return.
Examples of rent-related payments can include:
– Booking or letting fees
– Rental bond money if you are entitled to retain it should a tenant default on rent or damage your rental property
– Insurance payouts made in compensation for lost rent
– Recoupment or reimbursement made for deductible expenditure
If you are receiving goods or services instead of money for rent purposes, you must declare the monetary value of these goods or services.
If you own a property jointly with another person or persons, or if you have an interest in a partnership which relates to a rental property business, you must include your share of expenses and rent on your tax return.
Managed investment trusts
If you receive any credits or income from a trust investment, you must show these on your tax return.
Examples include income or credits paid from a:
– Unit trust
– Cash management trust
– Managed fund, such as a share trust, equity trust, imputation trust, balanced trust, growth trust, property trust etc
– Mortgage trust
– Money market trust
For tax purposes, a capital gain is any difference between the cost of an asset and the amount of income you received from it. Capital gains can also be received from managed funds or unit trusts, who may distribute capital gains to you. Capital gains are to be treated as part of your total income, and are not taxed separately.
Partnership, Business, and Trust Income
If you operate a business, you must declare its net income on your tax return.
Income received by you as an individual running a business
You must report any income earned from your business on your tax return. A separate tax return for your business is not required. Your own tax return can include a business schedule for reporting your business income.
Business partnerships don’t pay tax on their income, but they must lodge a partnership tax return which declares all deductible expenses and income earned. This must show how net income or loss has been shared between the partners.
Each partner is required to declare their share of the partnership’s net income or loss on their own tax return, even if they have not received any income yet.
Each partner owns a proportion of any capital gains made by the partnership. Capital gains are attributed to individual partners, and not the partnership itself for tax purposes.
Trustees are required to lodge a tax return for any trusts they are involved in. Like partnerships, trusts are not regarded as separate taxable entities.
Trust beneficiaries must declare the amount of trust income that they are entitled to as part of their personal tax return. Even if a beneficiary has not actually received income, they must report their stake in the trust.
The only exception to this is that trust distributions do not need to be declared if family trust distribution tax has been paid already.
As an Australian resident, you will be taxed for your global income. This means that you are required to declare foreign income on your Australian tax return.
Foreign income usually includes:
– Foreign employment income
– Foreign annuities and pensions
– Foreign investment income
– Capital gains made on overseas assets
– Foreign business income
Your foreign income may also be taxed in the country of origin, so it could be subject to double taxation. Australia has a system of exemptions and a credit designed to overcome this, and has obtained tax agreements with more than 40 countries.
If you are not an Australian resident, you will only be taxed on your income which originates in Australia. So you usually won’t have to declare foreign income on your tax return.
An increasingly popular means of fund raising, crowdfunding involves the use of social media and other internet services to raise funds for a venture or project. Crowdfunding arrangements are subject to rapidly reviewed and updated taxation regulations owing to its recent popularity and rapid growth.
For tax purposes, you must determine if any money received from crowdfunding is income or subject to GST. If it counts as income, it must be reported on your tax return.
Insurance payments and compensation for lost wages or salary
You are required to declare any amount received for lost wages or salary under an income protection policy, or accident or illness insurance policy/workers compensation scheme.
If you have made a claim of personal injury, and have agreed on a settlement or had a court rule in your favour, you may be compensated in the form of periodic payments or a lump sum. These payments are tax-fee, so long as some conditions are met.
Rights to shares or discounted shares under employee share schemes
If you are a participant in an employee share scheme (ESS) and receive discounted shares, you are required to declare this discount when you lodge your tax return.
Your discount will be evaluated based on the type of scheme you are involved in as well as personal circumstances.
Awards and prizes
You may have won a lottery or prize draw run by an investment body. If you have, you must declare the value of any prize or benefits on your tax return. Prizes might include low-interest loans, cars, holidays, or cash.
Prizes won in ordinary lotteries, such as raffles and lotto draws, do not need to be declared on your tax return.
Game show contestants are only required to declare prizes won if they regularly receive fees for appearances.
If you happen to dispose of or sell an asset that was acquired through winning a lottery, you may have made a capital gain. Any capital gains must be declared on your tax return.