October 20, 2018

What is Salary Packaging?

When negotiating an employment contract you may come across the term “salary packaging”. This refers to an arrangement between you and your employer, where your employer pays for certain items or services directly from your salary before tax. These expenses can include cars and superannuation.

The good thing about salary packaging is that it can lower your taxable income, giving you more money for other things. Your employer then has to pay Fringe Benefits Tax (FBT) on the benefits they have provided to you.

Here are some things that you need to know about salary packaging:

  • To be effective, your employer needs to set up salary packaging before you start work.
  • You can have this arrangement if your employer is open to offering benefits. It varies depending on the employer. Some may offer salary packaging into superannuation, while others may limit employees to other benefits.
  • Make sure that you discuss the terms of the arrangement with your employer thoroughly. The contract is usually made in writing, but it can also be in verbal form. Bear in mind that it may be challenging to get the facts straight if you don’t have documentation.
  • You can renegotiate your salary packaging arrangement when you renegotiate your contract of employment. You can also renegotiate the amount of salary to be packaged before the start of every contract renewal.
  • The employment contract should cover the details of your remuneration as well as the salary packaging arrangement.
  • Your employer needs to pay the fringe benefits tax on the benefits that are provided to you. You will find the list of these benefits on your end-of-year payment summary. It is also used to calculate your Medicare levy surcharge, government benefits, tax offsets, and payments for child support.

As well as cars and superannuation, items you may be able to salary package include loan repayments and school fees.

Benefits that your employer can provide without incurring fringe benefits tax include portable electronic devices, an item of protective clothing or computer software, briefcase or a tool used in trade.

These are just some of the things worth knowing about salary packaging. You may want to seek tax advice from a qualified individual so you will better understand the ins and outs of this arrangement.

Do you have other ideas on salary packaging and income tax in Australia? Share your insights in the comments section.

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What is the Medicare Levy?

We may have heard the expression, “health is wealth”, but sadly, some people don’t take it to heart, realising it is true only when the hospital bills pile up. Your health is of the utmost importance. We cannot work if we are sick and, obviously, our income will be affected. The good thing is, in Australia, we have the Medicare levy. This is the amount paid by taxpayers – two percent of their taxable income – to partially fund Medicare that gives us access to healthcare.

What is Medicare Levy? Here are some things worth-knowing about the Medicare levy:

  1. As a taxpayer, your Medicare levy is reduced if your taxable income is below the threshold specified.
  2. There are instances when you may not need to pay Medicare levy.
  3. Aside from the Medicare levy, you may need to pay the Medicare Levy Surcharge (MLS) if you do not have a private hospital health insurance.  This depends on your income, which also dictates whether or not you are eligible for a rebate of your private health insurance. The rebate refers to the amount that is contributed by the government for the cost of the premiums of your private hospital health insurance.
  4. You can check your income tax return to know the Medicare levy, MLS, and any other reductions. You may also use an income tax calculator to give you an idea of the amount of Medicare levy that you need to pay. Bear in mind that the Medicare levy, MLS or any other variations to your private health insurance rebate may affect your refund or the tax that you need to pay.
  5. What if the Medicare levy surcharge resulted in you having to pay tax? You can avoid a liability moving forward by reviewing your rebate and taking out a level of private hospital insurance.
  6. How can you be exempted from paying the Medicare levy? You don’t have to pay if you are a foreign resident of Australia and you’ve met certain medical requirements.  If you are not entitled to Medicare benefits, you may be exempted from paying Medicare levy.
  7. For those who have a low income, the Medicare levy will be reduced, if their taxable income is below a certain threshold.
  8. If your taxable income is higher than a certain threshold, you may still be able to reduce your Medicare levy depending on the taxable income of your family.

Do you have other ideas when it comes to Medicare levy and income tax in Australia? Share your insights in the comments section.

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Are You an Australian Resident for Tax Purposes?

If you’re an Australian resident, you need to file a tax return with the Australian Taxation Office and declare all income that you’ve received not only in this country but anywhere in the world for the last financial year. This also means that you need to pay the Medicare levy and are entitled to the tax-free threshold.

Bear in mind that the ATO and the Department of Immigration and Border Protection vary in standards used to identify whether an individual is an Australian resident or not.

In this article, learn how to determine if you’re an Australian resident or a foreign resident for taxation purposes:

ATO Residency Tests

The ATO uses several tests to find out if a person is an Australian resident or not. The main test of tax residency is called the resides test. It covers different factors such as the purpose of a person’s presence in the country, family and business ties, bank accounts, as well as social and living arrangements. These are assessed to find out whether an individual resides in the country. If that’s the case then he/she is a resident for taxation purposes.

If the individual fails the resides test, he/she needs to meet the requirements of any of these tests:

  • Domicile test – You will be considered an Australian resident for tax purposes if your permanent residence is in the country.
  • 183-day test – In this test, the individual should be in Australia for at least half of the income year, regardless of whether they are present in Australia continuously for half a year or with breaks.
  • Superannuation test – This is for employees of the Australian Government who work overseas at an Australian post. This is to ensure that they are considered Australian residents for taxation purposes.

So what if you are not an Australian resident? This means that you will only pay tax for income that is generated in the country. You are also not required to pay the Medicare levy, so you are not eligible to get Medicare health benefits. Likewise, you are not entitled to the tax-free threshold.

It can be a bit challenging to understand income tax in Australia. It would help if you do some research or seek tax advice from a qualified individual.

Do you have other ideas about income tax in Australia? Share your insights in the comments section.

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What You Need to Know About Tax File Number

When it comes to taxes, there are a lot of things to take into account. Whether you’re an employee, a business owner, a land owner or a tenant, there will always be tax-related matters to deal with. One of these is your income tax. Another one is your tax file number (TFN).

In this article, let’s get to know more about the tax file number:

Every Australian has a Tax File Number, which is a nine-digit number that serves as your identifier throughout your life for taxation purposes, so you have to protect it. If you change your name, move to a different state, change a job or go overseas and return to Australia, you will need your Tax File Number. You will also need your TFN to make transactions with the Australian Taxation Office as well as with other government agencies.

Specifically, you will need your TFN to perform these government-related transactions:

  • lodge a tax return
  • fill out a Tax File Number Declaration
  • start work or change a job – if you’re working and do not have a TFN, your employer will take 49 percent of your salary in tax.
  • apply for HECS-HELP
  • if you’re a sole trader – apply for an Australian Business Number (ABN)
  • apply for income assistance or support payments
  • claim the Family Tax Benefit (FTB)
  • make or receive payments under PAYG withholding

Tax File Number Application

You can apply for your TFN at over 460 retail outlets of Australia Post. You can likewise do it online. Just fill out an online form and bring a copy of the application summary together with proof of identity documents at any participating Australia Post outlet. Make sure to do this within 30 days of printing the application summary. Parents or guardians can apply for the TFNs of their kids.

A Tax File Number application can also be done at the Australian Taxation Office. Just get a copy of the form online or call the ATO. If you’re applying for a pension or a government benefit, you can get a form from the Department of Veterans’ Affairs or at Centrelink. The ATO will then send your TFB to the postal address that you’ve indicated in your application form. You can expect this within 28 days after the interview.

Do you have other ideas when it comes to income tax and your tax file number? Share your insights in the comments section.

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3 Effective Ways to Maximise Your Tax Return

Getting the full tax refund that you’re entitled to every year in Australia can be challenging. That’s why it’s important to better understand the ins and outs of income tax and taxation in general. There are several ways to get your tax deductions right. So how can you maximise your tax return?

Here are three things that you may want to consider:

1. Ask your tax agent

What better way to understand your income tax, tax return, and other taxation terms than asking questions of someone who’s knowledgeable about the subject? To ensure that you don’t miss anything, and get the tax return that you deserve, ask your tax agent. You may be surprised at how much of a deduction you can get at tax time. If you have expenses that are related to your work, you may be able to claim them. So ask away – your claims can add up to a lot of money.

2. Keep a record of all receipts

In some cases, we don’t really pay attention to work-related receipts throughout the year. Some are thrown away or put somewhere random. So when tax time comes, we scramble to get all receipts. Make life easier by keeping all of your receipts properly.  Not only is this important for claiming more expenses, saving your receipts is also the law. If it’s much easier for you, you can save your receipts with an online tool.

3. Save your work-related phone bills

Speaking of work-related expenses, make sure to keep your monthly account statements because you can claim work-related mobile phone bills on your tax return. You just need to assess the percentage of work-related calls that you made.

These are some of the ways to maximise your tax return. Again, reach out to your tax agent to ensure that you don’t miss anything that you should be doing when it comes to your tax.

Got other ideas on income tax and how to maximise your tax return? Share your insights in the comments section.

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Understanding Tax Basics for the Self-employed

Many wish to be their own boss in the future, to be self-employed. Of course, it comes with its own share of disadvantages, but the benefits seem to outweigh them.  With hard work, research, as well as careful planning, the dream of self-employment can be a reality.

If you are self-employed, you need to master money management. Bear in mind that the absence of an employer means that you will take care of everything. This includes your income tax. As an employee, you are used to having your employer take care of all tax-related matters.

But when you’re self-employed, you need to set aside money for your income tax and other expenses. As a small business owner, the Australian Taxation Office (ATO) will require you to make quarterly pay as you go tax installments. To give you an idea of how much tax you need to pay, you may use an income tax calculator.

As a self-employed individual, you need to meet your annual tax obligations. Otherwise, you may be required to pay large penalties. That’s why it’s important to keep due dates in mind. Make sure to include tax payments to your budget so you don’t miss any payments. Aside from penalties, the worst case scenario can be a legal action from the ATO to recover those taxes that you failed to pay.

To help you manage your income tax matters, here are some tips to keep in mind:

  • If you run a business or other enterprise and have a GST turnover of $75,000 or more, or you provide tax travel (including ride- sourcing), then you will need to register for GST. If your business or enterprise doesn’t fit into one of the GST registration categories, then registering for GST is optional. Please keep in mind that if you choose to register, you generally must stay registered for at least 12 months.
  • Open a separate savings account for tax payments. Stay on top of your tax obligations by setting aside money on a regular basis and depositing it in a separate savings account. Also, if your business is registered for Goods and Services Tax, make sure to include it in your account.
  • Keep all receipts and invoices. Any work-related receipts must be kept not only for tax-related matters but also for other areas of the business. And this applies from major purchases and utility bills to office supplies.
  • Hire an accountant. Yes, it costs money but with everything that you need to know about income tax and overall management of cash flow, hiring an accountant is worth it. He/She will be able to tell you about claims and where you can make deductions. Make sure, though, to get one who has experience with tax for self-employed individuals.

Do you have other ideas on income tax for the self-employed? Share your insights in the comments section.

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How to Use an Income Tax Estimator

When it comes to tax, one of the main things that you need to understand is income tax. There are many resources to help you understand what constitutes the income tax and how to compute it. There’s also an income tax estimator that you can use. This tool will help you determine how much income tax in Australia you need to pay, your marginal tax rate, as well as what will be left of your salary after deducting your tax and Medicare levy.

There are also income tax calculators that will help you determine your tax refund or debt estimate from previous years. Aside from your tax payable and Medicare levy, you can also use the income tax estimator to compute your Medicare levy surcharge, Higher Education Loan Program (HELP)/Trade Support Loan (TSL) repayment or Student Financial Supplement Scheme (SFSS) repayment.

So how do you use an income tax estimator?

You need several details when using an income tax calculator. These include the total gross income payments received for a certain period, total amount of tax withheld, total amount of deductions to claim, status of residency for income tax purposes, tax credits and tax offsets that you can claim, as well as other information depending on your situation.

The applicable rates will depend on the income year and the residency status for taxation purposes during a particular income year. For non-residents, the rate of taxes will be higher. They will also not be entitled to a tax-free threshold. As for part-year residents, the part-year tax-free threshold may be applicable.

The income tax estimator is a helpful tool in calculating the income tax for a specific year or period. However, it is important to note that this calculator will only be able to provide estimates. It will rely on the information that you provide, and since there are several factors that affect the income tax, the calculator will not be able to give the exact amount. It is not designed to determine the exact amount, but rather an estimate so you can be guided accordingly.

Based on the details that you provide in your tax return, you will be able to determine the actual amount of your tax refund or payable. It is also wise to seek guidance from a qualified individual so you can better understand your income tax and other tax-related matters.

Do you have other ideas on income tax in Australia? Share your tips in the comments section. 

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Using a Home Energy Power Monitor to Save Energy

Have you noticed that as time progresses, your energy bill keeps increasing? Almost anything at home can be done at the touch of a button, and most people spend a lot of time using their smart gadgets and phones. Before you know it, you’ll need to shell out more money month after month for utility bills. The good thing is, there are ways to help reduce energy consumption. One of these is through the use of energy-efficient appliances and energy-saving devices. Another way to save energy is to use a home energy power monitor.

Also called an energy meter, a power monitor is used to determine energy usage and compute the running costs of various appliances at home on a hourly, quarterly and even yearly basis. All you have to do is plug your home appliance into the power meter. It will then show energy usage and other details. With this device, you’ll be able to identify which of your appliances consume the most energy, and come up with ways to reduce your energy bill.

There are different versions of energy power monitors. One of these is the in-home display or IHD. Its basic model will be able to tell you the low, medium or high price period. With this information, you’ll be able to know the best time to use appliances, enabling you to save energy. On the other hand, the advanced models of IHD connect to the internet and provide more details including your energy consumption, usage history, and estimated cost.

Using a smart switch together with your energy power monitor will greatly help in measuring the energy consumption of individual devices and appliances. It can work well with an app on your smartphone, so you can monitor several devices and appliances at a given time. This makes energy monitoring easier, unlike when you assign a power meter per device.

Using a home energy power monitor is a great way to save energy, just like replacing some of your household gadgets with energy-saving devices. It will also help to inform all family members on the importance of being aware of their energy consumption. Every little thing counts, so start turning off appliances at the power point, switching to LED lights, and using smart gadgets to help you monitor the household energy usage.

Got other ideas about home energy power monitor and energy-saving devices? Share your tips in the comments section.

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What Freelancers Should Know About Tax in Australia

More and more Australians are becoming interested in freelancing, and for good reason. As a freelancer, you can take on as many different projects as you can. You can work wherever you want. If you work from home, you can save a lot on transportation costs. It offers numerous benefits, but it also comes with disadvantages. If you are an employee, you don’t have to worry about handling your income tax documents every year. Your employer will do that on your behalf. But if you are a freelancer, you will be the one to do this. Here are other important things about tax that you need to know if you intend to be a freelancer in Australia:

Get an ABN

An Australian Business Number is needed if you want to become a freelancer. How important is it? In general, having an ABN is a requirement for employers to hire you. But if you get hired even without an ABN, almost half of your income will go to the Australian Taxation Office.

Hire an accountant

Obviously, you have to pay for his/her services, but getting one will eventually help you save money by avoiding charges and unnecessary expenses that can be a result of not knowing how to handle your income tax and other taxation-related matters properly. The accountant will also be able to guide you on what items to claim as well as tax deductions. Take note, however, that it is better to hire an accountant who has knowledge and experience with tax requirements of freelancers.

Prepare tax invoices for GST input tax credit and tax deductions

You need a tax invoice for all taxable items that are more than $55 so you can claim GST input tax credit (provided you’re registered for GST) and tax deductions. If you are not registered for GST, you can claim tax deductions on items that you use for work. These items can be software, hardware, transportation costs, and part of your internet connection expenses.

Keep a record of all invoices and receipts

If the expense is work-related, keep the receipt or invoice. You can use an accounting software or even Excel sheets to keep track of receipt numbers. Good record-keeping will help you stay organised and especially if there’s an audit.

Do you have other ideas on what freelancers should know about income tax in Australia? Share your insights in the comments section.

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Things that You Need to Know about a Tax Return in Australia

When you are working in Australia, one of the important tax-related terms that you need to be familiar with is income tax. This refers to money paid to the government as a percentage of your gross income. Money from your work, pension, some government payments, investments, capital gains, and trusts or businesses is taxable. On the other hand, there are some things that generally aren’t taxable such as income tax on prizes and lottery winnings, small gifts or birthday presents, child support, as well as government super co-contributions.

The amount of income tax paid is based on how much is earned, and the highest rate that you will pay is known as the marginal tax rate. You can use an income tax calculator so you will have an idea on the amount of income tax that you need to pay.

Tax Return

Another important tax-related term is tax return. If you are earning a salary in Australia, you need to lodge your tax return. While your employer will deduct the taxes for every salary, lodging your tax return is necessary if you have additional income or you may need to claim some work-related expenses.

How can you lodge your tax return?

The simplest and quickest way is to do it online through the Australian Taxation Office website. Indicate your income and deductions in the pre-lodgement questionnaire and you will be provided with the suitable tax return product. You can likewise lodge your tax return through a registered tax agent, a Tax Help program or by completing a paper tax return form.

When do you need to lodge your tax return?

Since June 30 marks the end of the Australian income year, you can lodge your tax return of the previous income year from July 1 to October 31. Take note that should you decide to get a registered tax agent, you may lodge your tax return after October 31, just make sure to arrange it with him/her before that date.

Matters related to taxes can be overwhelming for a lot of people, but it doesn’t have to be that way. There are a lot of resources that will help you understand tax returns and income tax in Australia. Friends and family who have experience in handling income tax and lodging tax returns can likewise provide insights and tips. Also, you can seek assistance from a qualified individual. He/She will be able to guide you through the different tax processes.

Got other things worth knowing about income tax in Australia? Share your ideas in the comments section.

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