Tax System in Australia
A tax (from the Latin taxo) is a compulsory financial charge or some other type of levy imposed upon a taxpayer (an individual or legal entity) by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. The first known taxation took place in Ancient Egypt around 3000–2800 BC.
Most countries have a tax system in place to pay for public, common or agreed national needs and government functions. Some levy a flat percentage rate of taxation on personal annual income, but most scale taxes based on annual income amounts. Most countries charge a tax on an individual’s income as well as on corporate income. Countries or subunits often also impose wealth taxes, inheritance taxes, estate taxes, gift taxes, property taxes, sales taxes, payroll taxes or tariffs. In economic terms, taxation transfers wealth from households or businesses to the government. This has effects which can both increase and reduce economic growth and economic welfare. Consequently, taxation is a highly debated topic.
The money you pay in taxes goes to several places. Taxes are more than just paying the salaries of Parliamentarians and Public Servants; your tax dollars conjointly facilitate the support of common resources. At the Federal level we expend funds on Defence, Health, Education, with payments for Social Welfare, by and large, the biggest Federal expenditure. Of course, people expect state and local governments to provide services such as police protection, education, highway and road building and maintenance, welfare programs, and hospital and health care. Taxes are a major source of income to pay for these services and many others that hit close to home.
Australian Tax System:
The first income tax in Australia was imposed in 1884 by South Australia with a general tax on income.
Federal income tax was first introduced in 1915, as a wartime measure to help fund Australia’s war effort in the First World War. Between 1915 and 1942, income taxes were levied by both State governments and the federal government. In 1942, to help fund World War II, the federal government took over the raising of all income tax, to the exclusion of the States. The loss of the states’ ability to raise revenue by income taxation was offset by federal government grants to the states and, later, the devolution of the power to levy payroll taxes to the states in 1971.
Income tax in Australia is imposed by the federal government on the taxable income of individuals and corporations. State governments have not imposed income taxes since World War II. On individuals, income tax is levied at progressive rates, and at one of two rates for corporations. The income of partnerships and trusts is not taxed directly, but is taxed on its distribution to the partners or beneficiaries. Income tax is the most important source of revenue for government within the Australian taxation system. Income tax is collected on behalf of the federal government by the Australian Taxation Office.
The two statutes under which income tax is calculated are the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997; the former is gradually being re-written into the latter. Taxable income is the difference between assessable income and allowable deductions. There are three main types of assessable income for individual taxpayers: personal earnings (such as salary and wages), business income and capital gains. Taxable income of individuals is taxed at progressive rates from 0 to 45%, plus a Medicare levy of 2%, while income derived by companies is taxed at either 30% or 27.5% depending on annual turnover, but is subject to dividend imputation. Generally, capital gains are only subject to tax at the time the gain is realised and are reduced by 50% if the capital asset sold was held for more than one year.
The goods and services tax (GST) in Australia is a value added tax of 10% on most goods and services sales, with some exemptions (such as for certain food, healthcare and housing items) and concessions (including qualifying long term accommodation which is taxed at an effective rate of 5.5%). GST is levied on most transactions in the production process but is in many cases refunded to all parties in the chain of production other than the final consumer.
The tax was introduced by the Howard Government and commenced on 1 July 2000, replacing the previous federal wholesale sales tax system and designed to phase out several various State and Territory Government taxes, duties and levies such as banking taxes and stamp duty.
An increase of the GST to 15% has been put forward but is generally lacking in bi-partisan support.
Types of Taxes in Australia:
Different types of taxes in Australia are levied for Individuals, Businesses, Not-For-Profits, Government, Superannuation and Tax professionals.
Ø Superannuation tax
Ø Corporate tax
Ø Goods and Services tax
Ø Tax on Inheritance
Ø Excise tax
Ø Property tax
Ø Payroll tax
Ø Income tax
How Taxes work in returning benefits:
Taxes are designed to benefit people at various stages of their lives. People undergo different lifecycle stages from being single to becoming a couple, going on to be a family with children, and eventually back to older aged Australian singles. As people move from being non-tax paying infants and children to tax paying students and workers and finally into aged retirement with a Superannuation or Government type pension, individuals pay different levels of taxation and receive various benefits throughout their lifecycle. This suggests that a cross section of taxes and benefits received during a single year wouldn’t be able to readily identify whether people receiving benefits have either paid taxes within the past or conversely, it’s not an indicator whether those that are current taxpayers may have access or a belief that they would be eligible for benefits sometime in the future.
What happens if you don’t lodge a tax return on time?
If you earned under $18,200 and didn’t pay any income tax, you may not be required to lodge an Income Tax Return (ITR). Be that as it may, if you don’t make the relevant inquiries, the ATO may issue you a Failure to Lodge (FTL) letter. This is not immediately a fine but may become so if you choose to ignore the letter and not deal with the issue by the due date.
This fine is determined at the pace of one punishment unit for every time of 28 days or part thereof that the report is past due, up to a limit of five punishment units. The estimation of a punishment unit is as of now $210, which makes the most significant punishment which can be applied for an individual $1050. Interest calculates on the outstanding amount and can be added to your outstanding debt.
What should I do to lodge my tax return?
Getting your tax returns up to date can additionally assist you in capturing additional Government incentives and offsets such as superannuation co-contribution and household tax benefits. You’ll pay a deductible fee to lodge your returns. If it emerges that you don’t want to lodge a return for some of your years, we’ll organise and publish a non-lodgement advice on your behalf.
Additional Information and Assistance
We are keen to support your wellbeing. If you are feeling overwhelmed or are behind in your tax obligations, or any other tax matter, please contact us early so that we can work with you to find an amicable solution. It’s the first step in asking for assistance.
The team at Outclass Accountants can be email at firstname.lastname@example.org or call Michael on 0405 218 062 to discuss your tax matters in complete confidentiality.