Australian Civil Liberties Union
Your Rights 2005
Chapter 15
ADVICE FOR TAXPAYERS
Who
must lodge a return. Keeping Records. Tax rates. Tax file numbers. Pay as you go
Instalments
(PAYG). Deductions. Rebates. Notice of Assessment. Appeals. Family Tax
Initiative.
Who
must lodge a return
Residents ofAustralia who receive income of more than $6000 for the financial year 1 July 2004 to 30 June 2005 must lodge a taxation return. The higher the income, the greater the proportion will be paid as tax. Residents ofAustralia are assessed on all their gross income from all sources including income from overseas. Non residents are assessed on all their gross income from Australian sources only, without any threshold.
Unmarried
minors with non salary and wages income over $643 should also lodge returns.
Tax Return forms are included in a guide for the Taxpayer called the Tax Pack which is delivered to all households who do not have a tax agent, a short time before the end of the financial year (30th June). The Tax Pack is also available at that time from the ATO and most newsagents. The Tax Pack contains wide ranging advice indicating how to complete your tax return. If you are completing your own return you must refer to the Tax Pack because the form cannot be understood without it. Unlike tax return forms in previous years you do not set out separate items under headings such as interest on bank accounts or for deductions such as donations to charities but merely indicate the total amount involved. Take care to be accurate since some information such as bank interest can be easily checked by computers and the ATO will spot check and audit returns. You would then be required to document claims made in your return. If you provide false or misleading information, or fail to lodge your return by the due date you can be prosecuted. If you have failed to lodge returns in the past or have not provided correct information in the past, you may be able to avoid prosecution and heavy fines by providing the information to the ATO before the ATO catches up with you.
Tax
returns should be lodged by 31st October unless an extension of time is
obtained. The
earlier you send in a return the earlier you will obtain any refund due to you.
The
postal address for filing a return is set out in the Tax Pack. If you have
difficulties in
completing your return you should engage a tax agent to prepare your return.The
fees of
a tax agent are tax deductable in the year incurred, the agent will help to
minimise your tax
bill, and agents have an extended time in which to lodge your
return.
Advice
for Taxpayers
The
Australian Tax Office provides
over the counter or phone advice for taxpayers. If
you are attending the Australian Tax Office (or a tax agent) be ready to provide
your Tax
File number and to produce identification such as a driver’s licence or other
document
preferably with your photograph on it. Tax Help Centres run by community
volunteers
are set up in various locations. Ring the ATO to find the location of the
nearest centre
and take your Tax Pack with you.
Taxpayers Australia (phone numbers - Chapter 1) provides useful information especially for its members, and its spokesmen give advice through the media from time to time.
Talk
Back Radio. Excellent advice is given on various radio stations on taxation
and personal
investment matters and you may be able to obtain an answer to your particular
problem
by phoning on 'talk back'.
Printed Material. TheATO publishes many pamphlets, some of which are mentioned in this section and some of which are set out in the Tax Pack. Useful advice is contained in Longmans Australian Tax Guide, and more detailed information in the Australian Master Tax Guide. The newsletter of the Taxpayers Association and ’lift out’ guides for the taxpayers in newspapers are useful.
ATO. The ATO provides ’advice’ in the form of a ruling when a taxpayer who is unsure of his position on a tax matter (e.g. declaration of income, income splitting, capital gains tax etc.) seeks a ’Private Ruling’ which binds the ATO.
Keeping
receipts and records. It is important to keep records to ensure you can
prove
relevant amounts claimed as deductions and rebates, and keep them in case the
ATO
asks to see them.You should keep bank statements listing interest payments
copies of
dividend statements from companies, and receipts and diaries relating to
deductable expenses.
The tax pack outlines the rules for Employees’ Work expenses, Travel expenses
and
Car expenses.
Tax
rates for Resident Individuals
If your taxable income was less than $6000 for the year ended 30th June 2005 no tax is payable. People on low incomes pay a smaller percentage of their income as tax than those on high incomes.Tax rates are set out in the Tax Pack.
A
Medicare levy is collected by
the ATO and goes toward meeting the cost of the Medicare health scheme. The
Medicare
levy for 2004-2005 is 1.5% of taxable income. If your income is less than about
$15
529, you do not pay the Medicare levy.The Tax Pack explains who is exempt from
the levy
and the ’shading in’ provisions which reduce the levy for some people. If your
income is
more than $50 000 and you do not have private insurance, you may have to pay an
extra 1%
medicare levy.
Tax
File Numbers
Most
taxpayers already have a TFN which is listed on their assessment notices from
the
ATO. People without TFN can apply for a TFN at tax offices and will need to
produce two
or three identity documents (two of some type three of others depending on what
they
are). The relevant documents include birth certificates, passports, marriage
certificates,
motor registration papers and life insurance policies.
Under
the TFN system group certificates from employers, and statements of interest
income
from banks and building societies, and investment income from cash management
property
trusts and shares in public companies, will include the TFN of the taxpayer to
whom
the income was paid.TheATO will later match the TFNs on tax returns with TFNs
on
reports on income. People will have to quote their TFN when starting a job and
those already
in jobs will have to complete a new employment declaration. The TFN will have
to
be indicated when a new bank account is opened when an existing account is used,
and when
business investments are made. It will not be compulsory to give your TFN, but
if you
refuse tax will be deducted at the maximum rate plus Medicare Levy (48.5%), to
be credited
against tax assessed at the end of the year. Application forms for a tax file
number
can be obtained from the ATO.
ATO
- Safeguarding Your Privacy. Your
tax file number and tax information about you
is protected by Privacy Legislation.The ATO can give information about a
taxpayer only
to the taxpayer concerned and to their authorised agent (once the taxpayers
identity is
established) and to government agencies authorised by law to receive it. The
Privacy Commission
investigates breaches of privacy by the ATO (phone 008 023
985).
What
has to be declared
Salaries
and wages, profits from a business or profession, most pensions, rental from
property,
interest, dividends, holiday pay, long service leave entitlements, periodic
payments
of compensation, and most superannuation payments all have to be declared.
Income
will usually be of a periodic nature such as wages, be the product of an
activity of the
taxpayer, or be the product of some property owned by the taxpayer. Tips
received in the
course of employment are taxable and should be disclosed. Gifts, legacies
payable under
a will and gains from gambling (except by professional gamblers), maintenance
payments,
profit on the sale of some capital assets, damages awarded for personal injury
claims,
child support payments, military pensions, and fixed sum payments of workers
compensation
for future economic loss of earnings (except future income brought forward)
are not taxable income
Fringe
benefits for
employees include cars provided by the employer, free or low interest
loans, goods or services provided by the employer free or at below cost, and non
business
expenses of the employee met by the employer. The employer must now pay a
fringe
benefits tax on such benefits provided to the employee. Some employee benefits
such
as staff canteens and child care facilities on the employers premises are exempt
from the
fringe benefit tax.
Capital gains tax operates so that some gains must be included in assessable income. These are generally gains made on the disposal of assets acquired after 19 September 1985.The capital gains tax rules—who must pay, what assets are covered by the rules, and how losses are treated are contained in anATO series of booklets on capital gains tax. A brochure entitled Guide to Capital gains tax outlines the effect of the capital gains tax.
Capital
gains tax generally does not apply to a person’s home, certain personal use
assets worth
less than $10 000, motor cars, station wagons, panel vans, utilities, motor
cycles, most
superannuation policies and most life assurance policies. It generally does not
apply to
part of the goodwill of businesses, some compensation payments, casual winnings
from gambling,
decorations for valour or bravery, and assets used to produce exempt
income.
Pay
as you earn tax-PAYE
Employers
deduct tax from your weekly wage. The employer keeps a record of your
wages
for the financial year and gives you a Group Certificate at the end of the year
showing
how much tax you have paid. Employees will use the tear out tax form included
in
the Tax Pack.The Group Certificate will be attached to that form when it is sent
to the ATO.
You will need to state your Tax File Number. The ATO obtains computer lists of
interest
and dividends from banks, building societies and public companies which it
compares
with returns from individuals. Failure to disclose these amounts is likely to be
detected.TheATO
also makes spot checks to identify persons working at more than one job
under different names. An employee who also receives income from rental
property, or
who receives investment income of more than $999 and wishes to claim deductions
against
that income should refer to these matters in his tax return, guided by
information in
the tax pack.
Self
employed people and others
If
you are self employed; receive income from a rental property, partnership, or
trust (including
cash management or property trust); received interest from a Government
loan;
got income from overseas (except salary or pension); or got income as a primary
producer
sportsperson or performing artist, you should use the tear out form in the Tax
Pack,
unlike earlier years when there were separate forms for pay as you earn
taxpayers (form
S for most employees) and for self employed people (form AB). If you are
entitled to
claim a deduction against interest dividend or other investment income, if you
made profit
from property (for example land or shares) which was acquired before
20
September 1985 for profit making by sale or which was acquired and disposed of
within 12
months; or if you made a capital gain or loss on an asset acquired after 19
September 1985,
you should refer to these matters in your tax return.
Pay
as you go (PAYG) Instalment Rate
PAYG
instalments is a system which makes provision for the current year’s tax. It is
credited
against the tax assessed following the end of the year. The ATO assumes you will
earn
the same income as you received last year. PAYG instalments replaces provisional
tax.
If you anticipate you will receive less income for the next year you can apply to the ATO to reduce the amount required to be paid. If you earn more than $2,000 per year in non-salary or wage income from investments, business, primary production, distributions from a trust or any other sources not covered by the pay-as-you-go (PAYG) system or the Prescribed Payment System (for some contractors) you are liable for PAYG instalments.
PAYG instalmentscan also apply to wages if the shortfall in tax deducted from wages and total tax payable are both $3,000 or more. If your provisional tax in the previous year was more than $8000 and you are not excluded from the instalment system under the special provisions applying to primary producers, authors and inventors, you may pay your provisional tax in four instalments The earliest dates for payments of these instalments are I September, 1 December, 1 March and 1 June. See the Pay As You Go booklet.
Although
PAYG instalments are normally paid quarterly, if your PAYG instalments for
the
previous year (known as provisional tax for 1999 to 2000) was less than $8 000,
it is possible
to choose to pay your PAYG instalments by an annual instalment rather than
quarterly.
Annual instalments are due after 31 March each year. The ATO will send you
an
Instalment Activity Statment that will show when your annual instalment is
due.
Deductions
Many
expenses incurred by you in producing income are tax deductible. Work related
items
which wage and salary earners can deduct from their assessable income include
accident
insurance premiums, fees payable to a trade union or professional association,
and
self education expenses directed to maintaining or updating your skills in a
current occupation.
Other deductions include home office expenses such as electricity and
depreciation
on furniture, depreciation on professional libraries, depreciation on tools of
trade,
protective clothing and some uniforms, the cost of travelling between two jobs,
some
superannuation contributions, and gifts to various approved organisations
(charities and
hospitals, etc.) You will need to keep records for claims of more than $300 for
car, travel
and work expenses. If you cannot prove your claim it will be disallowed. This
may mean
you have to pay tax. Don’t send in your receipts or other records with your
return.
Only
produce them upon request. If you don’t want to claim more than $300 for the
total deductions
you need not keep receipts but you must keep a record of how the claim was
worked
out. If your total gross income is say $20000 and you spend say $2000 on tax
deductable
items then you will pay tax on only $18 000.
Rebates
A
tax rebate is something you can deduct from your tax bill and is more valuable
to you
than a tax deduction which is deducted from your assessable total income to give
you a
figure for your taxable income.Thus if you have a taxable income of $18 000, you
would be
liable to pay tax of $2040, plus Medicare Levy. If allowable rebates total $1000
your tax
bill would then be $1040. Read the advice in the Tax pack about deductions and
rebates
carefully. Rebates are available for a spouse or a daughter-housekeeper with
dependent
child, a parent, and an invalid relative. The ‘dependent spouse with child’
rebate
can only be claimed where the Basic Parenting Allowance has not been claimed
or
works out to less than the rebate. 20% of the amount by which unreimbursed
medical expenses
exceed $1500 may be claimed.
Most
pensions and benefits paid by various Government departments are taxable.
Special
rebates operate in relation to the taxation of certain pensions and benefits.
More information
about the taxation treatment of pensions and who is eligible for the rebates
can
be found in the Tax Pack
Notice
of assessment
Shortly after you or your tax agent have put in your tax return you will receive a Notice of Assessment from theTaxation Office based on the information provided by you in your return.The assessment is issued subject to later ATO checks and taxpayers can be penalised for understating income or overclaiming deductions. The assessment indicates how much tax you have paid and how much is still owed. If a tax refund is due to you a cheque will usually be included with the assessment. If the assessment indicates you owe tax it must be paid within the time stipulated by the Taxation Office. You may apply for time to pay.
Objections.
If you believe a Private Ruling or an assessment is incorrect you
should
lodge a formal objection in writing indicating in full the basis of your
objection. If the
Taxation Office does not allow your objection, you have a right of appeal to the
Administrative
Appeals Tribunal or the Federal Court.
Addresses
and phone numbers of capital city tax offices are set out in Chapter 1.
Addresses
and phone numbers of other tax offices are set out in phone-books under
Australian
Tax Office.
Australian Civil Liberties Union