Guide to income you must declare
Guide to income you must declare
 Overview
You must declare certain types of income to us.
Employment income
You must show employment income on your tax return, including:
- salary and wages
- allowances and other employment income
- lump sum payments.
Pensions, annuities and government payments
You must show payments on your tax return, including:
- pensions paid as a superannuation income stream
- annuities you purchased with a lump sum payment from a life insurance company
- government payments, such as the age pension and Newstart allowance.
Investment income
You must show investment income on your tax return, including:
- interest, including children's savings accounts and life insurance bonuses
- dividends you are paid as a shareholder
- rent and rent-related payments that you receive, or become entitled to
- income or credits you receive from any trust investment product.
Income from capital gains
You must show income from some capital gains on your tax return, including capital gains from selling real estate, shares and managed fund investments.
Business, partnership and trust income
You must show business income on your tax return, including:
- business income, including income you make as a sole trader
- partnership income
- trust income.
Foreign income
If you are an Australian resident, you are taxed on your worldwide income. This means you must declare all income you receive from foreign sources in your tax return. If you are not an Australian resident for tax purposes, you may not need to declare income you receive from outside Australia in your tax return.
Other income
You must also declare all income from:
- compensation or insurance payments you receive for lost income
- discounted shares or rights (including options) to acquire shares
- prizes or awards associated with employment or investments, depending on the circumstances.
If you spend money on something to help you earn your income, you may be entitled to claim that cost as a tax deduction.
Amounts not included as income
You may have received amounts that you do not need to include as income on your tax return, although these amounts may be used in other calculations on your tax return.
These could include exempt income, non-assessable non-exempt income or other amounts that you do not pay tax on, such as most child support and spouse maintenance payments.
Employment income
Unless specifically exempted from tax, all employment income − that is, all income from working − must be declared on your tax return.
Salary and wages
Salary and wages are the main forms of employment income. Generally, they are considered to be payments made to you:
- under an employment contract
- as remuneration for services.
Allowances and other employment income
You must declare other types of employment income, such as car allowances and tips.
Lump sum payments
When you leave employment, you may receive lump sum payments for unused annual and long service leave.
Reportable fringe benefits and super contributions
You also have to show some other employment-related items on your tax return if they apply to you, such as any reportable fringe benefits or reportable super contributions you have made.
Salary and wages
The employment relationship does not necessarily have to be between you and the entity making the payment. The essential element is the nature of any connection between the payment and your employment (with the payer or any other entity).
What is the difference between salary and wages?
Salary is a fixed periodical payment paid to a person for regular work or services; a wage is usually paid by the day or week for work or services which are of a more irregular nature.
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For more information about salary and wages, refer to Tax return for individuals instructions 1 - Salary or wages.
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Allowances and other employment income
Other types of employment income that you must declare include:
- allowances (for example, car, travel, clothing and laundry allowances)
- tips, gratuities and payments for your services
- consultation fees and honoraria (payments for voluntary services)
- jury attendance fees - except where you have to pay the fees to your employer because you received your normal employment income while you were on jury duty.
Lump sum payments
When you leave employment, you may receive lump sum payments for unused annual and long service leave.
If your employment was terminated, certain payments for unused annual and long service leave are entitled to concessional tax treatment. This is why the amounts must be recorded separately on your payment summary and your tax return.
A lump sum payment in arrears is a payment which relates to an earlier income year or years and should also appear separately on your payment summary.
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For more information about these payments, refer to:
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Reportable fringe benefits and super contributions
You have to show on your tax return any reportable fringe benefits or reportable super contributions you have made.
You do not have to pay tax on these items, but they are taken into consideration in tax and Centrelink income tests.
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For more information about these reportable items, refer to:
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Pensions, annuities and government payments
Pensions and annuities
Pensions and annuities are regular payments made as a superannuation income stream, including those paid to you (pensions) and payments usually purchased with a lump sum payment from a life insurance company (annuities). Most pensions have both taxable and tax-free components.
Government payments
Government payments include payments such as the age pension, carer payment, Austudy payment, Newstart allowance and youth allowance. Some government payments must be declared on your tax return, while others are exempt from income tax and do not need to be included on your tax return.
Pensions and annuities
An annuity is a series of payments and is usually purchased with a lump sum payment from a life insurance company.
A pension is a series of regular payments made as a superannuation income stream (excluding the government 'age pension'). These regular payments include those paid to you:
- by an Australian superannuation fund, life assurance company or retirement savings account (RSA) provider
- by a fund established for the benefit of Commonwealth, state or territory employees and their dependants - for example, the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme
- while you were still working
- as a result of another person's death (often referred to as 'death benefit income streams').
From 1 July 2007, your superannuation income stream benefits have two components - a tax-free component and a taxable component.
The tax-free component is non-assessable non-exempt income − that is, tax-free income. It may be shown at 'Tax-free component' on your PAYG payment summary - superannuation income stream, but you do not show it anywhere on your tax return.
The taxable component is the part of your benefit on which tax may be payable. You must declare two elements of the taxable component in your tax return:
- a taxed element − the part of your benefit on which tax has already been paid in the fund
- an untaxed element − the part of your benefit that is still taxable because tax has not been paid in the fund.
Government payments
The Australian Government provides financial and other assistance to people under a variety of programs. Common payments include the age pension, carer payment, Austudy payment, Newstart allowance and youth allowance. Depending on your circumstances, you may be entitled to one or more of these payments.
Many government payments are assessable for income tax purposes and must be declared on your tax return. Other government pensions, allowances and payments are exempt from income tax − for example, the disability support pension (when paid to a person who is below the age pension age). Exempt income does not need to be declared on your tax return.
Investment income
Generally, you need to declare income received in the form of interest, dividends and rent.
Interest
If you are an Australian resident and you receive, or you are credited with, interest from any source within Australia, you must declare the interest as income, including children's savings accounts and life insurance bonuses.
Dividends
If you own shares in a company, you will generally be paid your share of the company's profits as a dividend. You must declare all assessable dividends paid or credited to you.
Rent
You must declare the full amount of any rent and rent-related payments that you receive, or become entitled to, when you rent out your property - whether it is paid to you or your agent. If you receive rent-related payments in the form of goods and services, you must work out and declare the monetary value of these.
Managed investment trusts
You must show any income or credits you receive from any trust investment product on your tax return.
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For more information on tax matters relating to investments, refer to Investment - home.
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Interest
If you are an Australian resident and you receive, or you are credited with, interest from any source within Australia, you must declare the interest as income. Include:
- interest earned from financial institution accounts and term deposits, and
- interest we paid or credited to you.
Children's savings accounts
If you opened or operated an account for a child and the funds in that account belonged to you, or you spent or used the funds in the account as if they belonged to you, you must include any interest from the account.
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For more information, refer to:
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Life insurance bonuses
You must declare some types of life insurance bonuses. You will get a tax offset equal to 30% of any bonus amounts included in your income.
Dividends
You may receive dividends from a:
- listed investment company
- public trading trust
- corporate unit trust
- corporate limited partnership (in the form of a distribution).
A dividend can be paid to you as money or other property, including shares. If you are paid or credited with bonus shares, the company issuing the shares should provide you with a statement indicating whether the bonus shares qualify as a dividend.
A dividend is assessable income in the year it was paid or credited to you. Your dividend statement should have the relevant date (often referred to as the payment date or date paid).
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For more information, refer to Tax return for individuals instructions 11 - Dividends.
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Imputation system
Dividends that Australian resident companies pay their shareholders are taxed under a system known as 'imputation'. It is called an imputation system because the tax the company pays is imputed to, and allocated to, the shareholders as franking credits attached to the dividends they receive.
The basis of the system is that if a company pays or credits you with dividends which have been franked, you may be entitled to a franking tax offset for the tax the company has paid on its income. The franking tax offset will cover or partly cover the tax payable on the dividends.
Children's share investments
If you are holding shares for the benefit of a child, or if you have helped a child obtain an interest in shares, it is important the correct person declares the related dividends. In general, whoever rightfully owns and controls the shares should declare the dividends.
Rent
You must include rental bond money as income if you become entitled to retain it - for example, because a tenant defaulted on the rent or because of damage to your rental property requiring repairs.
If you received an insurance payout, there may be situations where the payout needs to be included as income - for example, if you received an insurance payment to compensate you for lost rent.
If you received a letting or booking fee, you must include this as part of your rental income.
If you received a reimbursement or recoupment for deductible expenditure, you may have to declare an amount as income. For example, if you received an amount from a tenant to cover the cost of repairing damage to some part of your rental property and you can claim a deduction for the cost of the repairs, you need to include the whole amount you received from the tenant in your income.
Co-ownership
If you own a rental property jointly or in common with another person, or if you have an interest in a partnership that carries on a rental property business, include only your share of rent and expenses on your tax return. The way that rental income and expenses are divided between co-owners varies, depending on the nature of the co-ownership.
Managed investment trusts
You must show any income or credits you receive from any trust investment product on your tax return. This includes income or credits from a cash management trust, money market trust, mortgage trust, unit trust or managed fund, such as a property trust, share trust, equity trust, growth trust, imputation trust or balanced trust. If you're unsure whether your trust investment product is one of these types of trusts, check with the trustee.
Income from capital gains
If a capital gains tax (CGT) event occurs − for example, if you sell an asset − you may make a capital gain. Generally, your capital gain is the difference between your asset's cost base (what you paid for it) and your capital proceeds (what you received for it). You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.
There is no separate tax on capital gains − a gain is treated as part of your total income and taxed accordingly.
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For more information about capital gains tax, including how to identify a CGT event and how to calculate your capital gain, refer to Capital gains tax - home.
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Business, partnership and trust income
The net income you receive from carrying on your business is assessable income and you need to declare it on your tax return.
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Income as a sole trader (self employed)
Income earned by you as a sole trader is shown on your individual tax return using a separate business schedule.
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Income from a partnership
A partnership does not pay tax on its income, but must complete a partnership tax return. Each partner shows their share of the partnership's net income in their individual tax return and pays tax on that share.
Income from a trust
A trust is not a separate taxable entity, but the trustee is required to lodge a tax return for the trust. Generally, the trust income is taxable to the beneficiaries who are entitled to receive that income, and the income is shown in their individual tax returns.
Income from a company
If you run your business as a company, you may have received salary, wage, directors fees, dividends or other forms of benefits which you may have to show on your tax return.
Income from a partnership
For income tax purposes, a partnership is an association of individuals, companies or trustees (in any combination) that:
- carry on business as partners (a general law partnership), or
- receive income jointly.
A partnership does not pay tax on its income. However, when a partnership business is being carried on, a partnership tax return must be completed showing all income earned by the partnership and all deductible expenses. It will also show how the net income or loss has been distributed between the partners.
A partnership return does not need to be lodged if the jointly received income is investment income - for example:
- income from a jointly owned rental property
- interest from a joint bank account, or
- dividends from jointly held shares.
Corporate-limited partnerships and limited partnerships are generally treated in the same way as companies for tax purposes and do pay tax on their income.
Who pays tax in a partnership?
Each partner must declare the whole of their individual share of the partnership's net profit or loss in their individual tax return, whether the income has actually been distributed to them or not.
For capital gains tax (CGT) purposes, each partner owns a proportion of each CGT asset. Each partner calculates a capital gain or capital loss on their share of each asset. It is the individual partners who make a capital gain or capital loss from a CGT event, not the partnership itself.
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For more information on income or a loss from a partnership and credit for amounts of tax paid on, or amounts withheld from, partnership income, refer to Tax return for individuals instructions 13 - Partnerships and trusts.
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Income from a trust
As with partnerships, a trust in itself does not pay tax on its income. Usually, it is the beneficiaries who are entitled to receive that trust income who are liable for the tax payable. However, the trustee is required to lodge a tax return for the trust and may, in some cases, be liable in the capacity of trustee for tax payable on some trust income. This situation would generally arise when there is an amount of trust income to which:
- no beneficiary is 'presently entitled', or
- the beneficiary is presently entitled but they are under a 'legal disability'.
If you are assessable on a distribution of income received from any trust, you must declare this on your tax return. This includes distributions from a trust investment product, such as a cash management trust, money market trust, mortgage trust, unit trust or managed fund, share trust, equity trust, growth trust, imputation trust or balanced trust.
You do not include in your assessable income any part of a distribution to you on which family trust distribution tax has already been paid and which would otherwise be assessable income.
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For more information on:
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Income from a company
If you run your business as a company, you are likely to have been paid a salary, wage or directors fees by the company. These amounts need to be shown in the relevant parts of your tax return. Your company may also pay dividends to you as a shareholder, or pay you interest on a loan, or provide other forms of benefits which may also have to be shown on your tax return.
Foreign income
Australian residents are taxed on their worldwide income so you must declare all foreign-source income in your income tax return. Foreign income includes:
- foreign pensions and annuities
- foreign employment income
- foreign investment income
- foreign business income
- capital gains on overseas assets.
Your foreign income may also be taxed in the source country and may, therefore, be subject to double taxation. To overcome this, Australia has a system of credits and exemptions and has signed tax treaties with more than 40 countries, including all our major trade and investment partners.
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For more information on:
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Other income
When you declare your income to us on your tax return, you must include:
Compensation and insurance payments
When you declare your employment income to us on your tax return, you must include any amounts paid to you for lost salary or wages under an income protection, sickness or accident insurance policy or workers compensation scheme.
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If you've received:
- payments for lost salary or wages under an income protection, sickness or accident insurance policy, refer to Tax return for individuals instructions
- a life insurance bonus, refer to Investment income.
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Compensation payments for personal injury
If you have a severe personal injury because of the fault of someone else, you may be able to make a claim against that person or their insurer for compensation. A personal injury case may arise from medical negligence, sporting accidents, motor vehicle accidents, public liability or product liability. A lawyer can advise you whether or not you have a valid claim.
If you settle a personal injury claim, or if a court orders in your favour, you may receive compensation, either as a lump sum payment or as structural (periodic) payments (or both). These payments will be tax-free, provided that certain conditions are met.
Employee share schemes
Some companies encourage employees to participate in employee share schemes by offering them discounted shares or rights (including options) to acquire shares. Employee share scheme income tax rules (ESS tax rules) apply to this discount.
Prizes and awards
You must declare the value of any benefits or prizes you received from an investment-related lottery offered by an investment body such as a bank, building society or credit union. Prizes may include cash, low-interest or interest-free loans, holidays or cars.
Do not declare prizes won in ordinary lotteries - for example, lotto draws, caskets and raffles.
Only declare prizes won in game shows if you regularly receive appearance fees or game-show winnings.
Amounts not included as income
You may have received amounts that you do not need to include as income on your tax return, although these amounts may be used in other calculations on your tax return.
There are three different categories of these amounts:
- exempt income
- non-assessable non-exempt income
- other amounts that you do not pay tax on.
Exempt income
This includes some:
- Australian Government pensions, such as the disability support pension paid by Centrelink to a person who is under age-pension age
- Australian Government allowances and payments, such as the carer allowance, baby bonus and the child care benefit
- pay and allowances for Australian Defence Force personnel
- Australian Government education payments, such as allowances for students under 16 years old.
Non-assessable non-exempt income
This includes:
- the tax-free component of an employment termination payment (ETP)
- genuine redundancy payments and early retirement scheme payments shown as 'Lump sum D' amounts on your payment summary
- first home saver account government contributions
- first home saver account interest and other earnings credited to the account
- super co-contributions
- the tax bonus paid under the Tax Bonus for Working Australians Act 2009.
Other amounts that aren't taxable
This includes most child support and spouse maintenance payments.
Exempt income
Exempt income is income on which you do not need to pay tax.
However, exempt income is taken into account when calculating the tax losses of earlier income years that you can deduct.
Also, some types of exempt income are taken into account when calculating the adjusted taxable income (and for income years prior to 2009-10, the separate net income) of your dependants.
In addition, some questions in your tax return ask you to show the exempt income you or your spouse may have received.
Generally, you cannot deduct expenses you have incurred in gaining your exempt income when calculating your taxable income.
Scholarships, bursaries, grants and awards
Some scholarships, bursaries, grants and awards - including education benefits provided under a friendly society scholarship plan - are taxable.
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If you are not sure whether a scholarship payment is exempt from tax:
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Working overseas for the Australian Defence Force or Federal Police
If you are a member of the Australian Defence Force or the Australian Federal Police and are working overseas, you may be paid exempt income.
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For more information, refer to:
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Non-assessable non-exempt income
Non-assessable, non-exempt income is income on which you do not need to pay tax. It does not affect your tax losses, but some types of non-assessable, non-exempt income may affect your liability for the Medicare levy surcharge.
Some types of non-assessable non-exempt income are taken into account when calculating the adjusted taxable income (ATI) of your dependants.
Generally, you cannot deduct expenses you have incurred in gaining your non-assessable, non-exempt income when calculating your taxable income.
Other amounts that aren't taxable
You don't need to declare prizes you win in ordinary lotteries such as lotto draws, caskets and raffles. You also don't need to declare prizes won in game shows unless you regularly receive appearance fees or game-show winnings - see Prizes and awards.
You don't have to declare rewards or small gifts such as cash birthday presents. However, gifts may be taxable if they are large amounts or you receive them as part of a business-like activity or in relation to your income-earning activities as an employee or contractor.
In most cases, you do not have to declare child support and spouse maintenance payments you receive. Nor can you claim a tax deduction for making these payments. However, there may be tax implications in more unusual cases, such as where a parent transfers property to a trust for the benefit of their children.
Example
Lee and Rae are divorced and have three children. Under a child support agreement, the Child Support Agency collects part of Lee's salary each fortnight. The Child Support Agency then transfers the money into Rae's bank account. Rae does not have declare or pay tax on these payments.
Last Modified: Wednesday, 19 October 2011
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