You pay tax on your taxable income. Your taxable income is calculated as your assessable income less your allowable deductions. Your assessable income includes the following:
Salary and wages
The most common type of employment income is salary and wages.
Salary and wages includes:
- your normal weekly, fortnightly or monthly pay
- money for part-time or casual work
- parental leave pay
- payments from
- an income protection policy
- a sickness or accident insurance policy
- a workers compensation scheme.
Allowances and other employment income
You may receive other payments in connection with your employment such as:
- allowances, such as car, travel, clothing and laundry
- tips, gratuities and payments for your services
- consultation fees and payments for voluntary services
- jury attendance fees
If you received a travel allowance or overtime meal allowance paid under an industrial law, award or agreement, you don’t have to include it on your tax return if it meets all of the following:
- it was not shown on your payment summary
- it does not exceed the Commissioner’s reasonable allowance amount
- you spent the whole amount on deductible expenses.
If you’re an Australian resident and you receive interest, you must declare it as income. Interest income includes:
- interest earned from financial institution accounts and term deposits
- Interest earned from children’s savings accounts if you opened or operated an account for a child and the funds in the account belonged to you, or you spent or used the funds in the account
- interest the ATO paid or credited to you
- life insurance bonuses (you may be entitled to a tax offset equal to 30% of any bonus amounts included in your income)
- interest from foreign sources (you may be entitled to a tax offset for any tax paid on this income)
A dividend can be paid to you as money or other property, including shares. If you are paid or credited with bonus shares, the company issuing the shares should provide you with a statement indicating whether the bonus shares qualify as a dividend.
Dividend income is usually paid from a:
- listed investment company
- public trading trust
- corporate unit trust
- corporate limited partnership (in the form of a distribution).
Some dividends have an imputation or franking credit attached, which you must also declare on your tax return. If a company pays or credits you with dividends that have been franked, you’ll generally be entitled to a franking tax offset.
Managed investment trusts
You must show any income or credits you receive from any trust investment product on your tax return. This includes income or credits from a:
- cash management trust
- money market trust
- mortgage trust
- unit trust
- managed fund, such as a property trust, share trust, equity trust, growth trust, imputation trust or balanced trust.
You must show any income you receive from any rental property on your tax return. This includes income from both Australian and overseas properties.
Generally, your capital gain is the difference between your asset’s cost base (what you paid for it) and your capital proceeds (what you received for it). You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you. A capital gain is treated as part of your total income and not taxed separately.
Lump sum payments
There are two common types of lump sum payments. When you leave a job, you may receive a lump sum payment for unused annual and long service leave. The second is a lump sum payment in arrears for money owed to you from an earlier income year. Both of these lump sum payments are assessable in the year you receive them
Reportable fringe benefits and super contributions
Other employment-related income includes:
- reportable fringe benefits given to you by your employer, such as a work car for private purposes, a cheap loan or free private health insurance
- reportable super contributions made on your behalf by your employer.
You don’t have to pay tax on these items but they are used to work out whether you are eligible to receive a range of government benefits and tax offsets.
Business, partnership and trust income
The net income you receive from carrying on a business is assessable income and you need to declare it on your tax return.
Income you receive as an individual running a business
If you are an individual running a business you must declare the income that you earn from your business on your own tax return using a separate business schedule. You don’t need to lodge a separate tax return for your business.
Income from a partnership
While a business partnership doesn’t pay tax on its income, it must lodge a partnership tax return declaring all income earned and all deductible expenses. It will also show how the net income or loss has been distributed between the partners.
Each partner must declare their individual share of the partnership’s net income or loss in their individual tax return, whether or not they have actually received the income.
For capital gains tax (CGT) purposes, each partner owns a proportion of each CGT asset and calculates a capital gain or capital loss on their share of each asset. It is the individual partners who make a capital gain or capital loss from a CGT event, not the partnership itself.
Income from a trust
Like a partnership, a trust is not a separate taxable entity but the trustee is required to lodge a tax return for the trust. Generally, the beneficiaries of the trust declare the amount of the trust’s income to which they are entitled in their own tax return and pay tax on it. This is the case even if the beneficiaries did not actually receive the income.
An exception to this is that you don’t need to declare a trust distribution if family trust distribution tax has already been paid.
If you’re an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare any foreign income in your income tax return.
Foreign income includes:
- foreign pensions and annuities
- foreign employment income
- foreign investment income
- foreign business income
- capital gains on overseas assets.
As your foreign income may also be taxed in the source country, it is potentially subject to double taxation. To overcome this, Australia has a system of credits and exemptions and has signed tax treaties with more than 40 countries, including all our major trade and investment partners.
If you’re not an Australian resident for tax purposes, you are only taxed on your Australian-sourced income, so you generally don’t need to declare income you receive from outside Australia in your Australian tax return.
Other income you need to declare on your tax return includes:
Compensation and insurance payments for lost salary or wages
You must declare any amounts you received for lost salary or wages under an income protection, sickness or accident insurance policy or workers compensation scheme.
If you’ve made a personal injury claim and you agree to a settlement, or a court orders in your favour, you may receive compensation in the form of a lump sum payment or structural (periodic) payments (or both). Such payments are tax-free, provided certain conditions are met.
Discounted shares or rights to shares under employee share schemes
If you participate in an employee share scheme (ESS) to receive discounted shares or rights to acquire shares, you must declare the discount you received on your tax return. The type of scheme you participate in, and in some cases your personal circumstances, will determine how any discount you receive is treated for tax purposes.
Prizes and awards
If you’ve won something in a prize draw or lottery run by your bank, building society, credit union or other investment body, you must declare on your tax return the value of any benefits or prizes you received. Prizes may include cash, low-interest or interest-free loans, holidays or cars.
However, you don’t need to declare prizes won in ordinary lotteries such as lotto draws and raffles.
If you’ve been a game show contestant, you only declare prizes you won if you regularly receive appearance fees or game-show winnings.
If you sell or otherwise dispose of an asset that was a prize from a lottery, you may make a capital gain, which must be declared on your tax return.