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Basics of tax paying

Businesses and individuals, whoever is an earning member of a countries economy, has to pay taxes. Taxes are a way by which a citizen contributes to the country and its development. The economic structure of any country utilises this tax paying system to conduct the operational activities of the nation through various means. At a very simple level, tax is the money paid to the government by an organisation or individual who earns. There are many categories of taxation based on various factors. Let’s have a look at some of the basic aspects of tax.

Jurisdiction to tax

In Australia, the Federal Government has the jurisdiction to tax its residents on income through local or global sources and to foreign residents earning sourced in Australia. There are specific rules and regulations laid by Australian legislation which define the residency of an individual and then its corresponding tax category. There is also a system for determining if the income source is in Australia or not. In general, income source is defined by the location of employment or the founding place of the business. For risks involving multiple taxations on single income sources due to confusion and process limitation, Australia has introduced double tax agreements with other countries which ensures taxation happens only once.

Income tax

Income tax is the tax that is imposed on any individual or business who is earning money from jobs, businesses of investments. There is, however, a tax-free threshold which allows a person to be financially stable enough before being enlisted as a tax-payer. Australia runs a progressive tax system which means the more the earning is, the more amount of tax is imposed in terms of rate. Normally, a tax return is lodged for this purpose and income tax is deducted at source, which means the money which enters an employee’s bank account is after the tax has been deducted by the employer. The deducted amount is recorded and sent to ATO.

Other income tax sources like business, investments or bank interest have to be accounted by own self. Every financial year, taxpayers lodge a tax return, stating the full disclosure of tax-related details. There is a rule for taxable income which states that the total assessable income is the amount left after calculating allowable deductions. Any due tax refund from previous year till be adjusted and carried forward to the next year. Assessable income includes salaries, wages, and income from business, interest, rent and dividends. Deductions include expenses spent for activities to ensure income, alongside other particular deductions under the legislation.

Tax for companies

After the general sourcing rules apply, every company in Australia is entitled to paying tax. Unlike individuals, there is a flat rate of tax application for companies. Bonuses or dividends paid by the companies to their employees are counted in the employee or shareholders income category. This ensures that the dividend taxes are counted and carried by the person bearing it.

Other types of tax

Above mentioned are only the major types of tax in general. There are other types of taxes as well which include luxury car tax, Fringe Benefits Tax (FBT), Medicare Levy and Medicare Levy Surcharge, Superannuation tax, Excise duty, Customs duty, Customs duty, Land tax and any other categories.

Late fine and penalty

Failure to lodge (FTL) on time penalty is applicable in case of failed tax payments. There are warnings given by phone or in writing before imposing FTL penalty. FTL penalty includes the details of the penalty and the due payment date. For medium entities, the penalty is multiplied by two and for large entities, it is multiplied by five. However, remission requests can be applied for given that the request is compliant to the extenuating circumstances that caused the delay.

Tax, taxation and tax paying is a wide field with many categories, conditions and clauses. It can all get complicated to handle and that’s why it is recommended to consult professional services like Plant & Associates for this

Please note that due to Covid 19 restrictions, we can only have one client in a meeting with a staff member at any one time. We will be staggering appointments and staff availability due to this.

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