EMAIL #24 - 25TH, MARCH, 2019 - EVERYONE'S FAVORITE TOPIC - Taxation
Hi Team,
This week I am going to tackle the big topic of "TAXATION", so you are going to have to bare with me and stay focused. This is such a big topic that I will deal with it over two weeks in an attempt to keep it as brief and engaging as possible.
A simple definition of Taxation form the Collins Dictionary is, "A system by which governments take money from individuals and companies and spend it on essential goods and services such as roads, education, defense and health care etc."
There are literally dozens of different forms of taxation currently in Australia, but I am only going to cover the main ones that directly affect most of us. The big one that none of us can avoid is Income Tax or PAYG (pay as you go) tax. It is the main form of direct taxation that every working adult has to pay. Income tax is a "progressive tax" which means the more you earn the more tax you have to pay. Below is a summary table of the current Australian income tax rates.
Resident tax rates 2018=E2=80=9319
Taxable income
Tax on this income
0 =E2=80=93 $18,200
Nil
$18,201 =E2=80=93 $37,000
19c for each $1 over $18,200
$37,001 =E2=80=93 $90,000
$3,572 plus 32.5c for each $1 over $37,000
$90,001 =E2=80=93 $180,000
$20,797 plus 37c for each $1 over $90,000
$180,001 and over
$54,097 plus 45c for each $1 over $180,000
The above rates do not include the Medicare levy of 2%. Note: that every adult that earns over $27500.00 has to pay the 2% Medicare levy on top of the applicable income tax rate above.
PAYG tax is deducted from your weekly pay buy your employer and is paid to the ATO (Australian Taxation Office) each month on your behalf. Australia has a "self-reporting system" for income tax, which means it is up to the individual employee to report their income and submit their own tax return at the end of each financial year (i.e. end of June).
Preparing a tax return is now very simple and straight forward by using the "myTax" app on the "myGov" website. It only takes 5 minutes to prepare a personal tax return and it's free. So, most wage earners no longer need to pay an accountant or tax agent to do their tax return. There is even an app called "myDeductions" on the myGov website for working out all of your eligible tax deductions.
The main form of indirect taxation in Australia is the GST (goods and services tax) where 10% is added to almost every product and service sold within Australia (excluding most food products, most education fees and some health care services). The GST is collected by the seller and is paid to the government every three months after lodging a BAS statement. The GST is a significant form of taxation for anyone who is self employed especially subcontractors and tradesmen.
The other main form of indirect taxation is stamp duty which is a tax payable when you purchase a property or motor vehicle. Stamp duty is a state based tax that varies from state to state and is also progressive. When purchasing a property stamp duty starts at 1.4% but quickly jumps to 5% above a purchase price of $130k, then 6% above $440k, then a flat rate of 5.5% above $960k (ie you pay $52k of stamp duty on a $960k property), so it is a significant factor, that is often overlooked, when purchasing a property. However, in victoria there is currently a 50% reduction in stamp duty for eligible first home buyers up to a purchase price of $600k.
"You don't know how much you have to be thankful for until you have to pay tax on it", - Unknown
My only advise when it come to taxation, is make sure you always stay on top of your own tax obligations.
I have personally been audited by the ATO twice over the last 30 years and it is not a fun process!
Next week I will cover other taxes that directly affect investments, such as CGT (capitol gains tax), land tax, negative gearing and family trusts. Bet you can't wait?
Thanks for reading,
David.
