Tax – everyone pays!
Bought a $5 hot chocolate? You just provided 45 cents to the government thanks to Goods and Services Tax – or GST – which is a tax on spending. But the real ‘fun’ with tax starts once you get a job and start earning an income.
Why does tax matter to me?
As you enter the workforce and make more money through your side-hustles, understanding tax means fewer nasty surprises and more cash left for savings, Netflix, Spotify, or, more often than not – petrol!
Where does tax money go?
The money collected from taxes pays for things like roads, hospitals, disaster relief, rubbish collection (and more) for Australians.
Income tax in plain English
Australia uses a progressive income tax system: The bigger your pay packet, the bigger the slice the government carves off. The first $18,200 you earn each financial year is tax-free. Earn more than that, and the rate you pay progressively creeps up in levels – think of it like going up an elevator in a high-rise where every floor costs a bit extra.
What is a TFN?
A Tax File Number (TFN) is a nine-digit code that tells the Australian Tax Office (ATO) who you are. No TFN = your boss withholds the maximum tax rate – or around 45% – of every pay packet. Ouch. With a TFN, withholding is based on your real income, so you don’t over-pay. Good news: You can apply online yourself once you’re 15 (younger teens may need a parent to sign on their behalf). Get one before your first shift – future you will high-five present you!
What is PAYG?
You’ll see “PAYG” on payslips. It stands for Pay As You Go – your employer sends some of your earnings (aka paying tax) to the ATO every payday. The amount withheld follows the ATO tax brackets; if your income stays under the tax-free threshold, nothing should disappear. Over the line? Expect a little bit of tax to be taken out of your pay each week.
Your tax return
Between the 1st of July and 31st of October each year you file a tax return. You can do this yourself (e.g. MyTax) or via a taxation professional on your behalf (e.g. an accountant). If too much tax was withheld from your pay in the previous financial year, you score a refund; if too little, you get a bill.
Tip: Keep receipts for any work-related gear (steel-cap boots, tool belts, even compulsory uniforms) and a record of any work-related travel expenses as some or all of these may be claimed as tax deductions on your tax return. Deductions shrink your taxable income, which means more cash back for you. The free ATO app lets you do all of this for free on your phone. I like to keep a physical copy of all my receipts in a folder (I know, I’m old!), but a couple of years ago I lost out on being able to claim some deductions because the receipts had faded so much, they were unreadable. With the ATO app, I can snap my receipts while I wait for the train!
Scam alert!
Tax time is a scammers’ dream, and with Australians losing over $2 billion to scammers in 2024 alone, it’s important to stay alert. The ATO will never text you a link asking for passwords or bank details. If a message demands “urgent payment” or promises “instant refund,” or otherwise seems like something is off, do what Scamwatch.gov.au suggests and Stop (don’t give money or your information to anyone if unsure.). Check (ask yourself if the message or call is fake). Protect (act quickly if something feels wrong).
Over to you: What part of tax still feels fuzzy – and how could a clearer answer help you (and your wallet) right now? Let us know!
By Damian Nicholson
About the author
Damian Nicholson is National Manager of Digital Learning and Program Development at Financial Basics Foundation. He spends his days with the FBF team creating free financial literacy games, short-courses and resources for teens, parents and teachers and his nights with his wife chasing after a house full of kids, cats and dogs.
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