Australian Civil Liberties Union
Your Rights 2005
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.
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.
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.
Contents of Your Rights
Australian Civil Liberties Union