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  • Income and deductions

    Understanding tax - starting out

    The main tax you'll pay is income tax, which is charged on income you receive, such as salary and wages, investment income and business income. Usually you pay income tax during the year as you earn the income. It's called 'pay as you go' (PAYG).

    How much income tax you pay

    The amount of income tax and the tax rate you pay depends on how much you earn. The more you earn, the higher your rate of tax. If you're an Australian resident, the first $18,200 you earn is tax-free.

    Income you must declare

    You pay income tax on assessable income you receive, such as salary and wages, most Centrelink payments, investment income from rent, interest and dividends, and profits from selling shares or property.

    Deductions you can claim

    When completing your annual tax return, you're entitled to claim deductions for some expenses that are directly related to earning your income. You subtract these 'allowable deductions' from your total income to reduce your taxable income.

    Offsets you can claim

    You may be eligible for tax offsets that reduce the amount you pay. You claim offsets in your tax return.

    Records you need to keep

    Income tax works on a self-assessment principle. This means we initially accept the accuracy of the information you provide and work out your tax on this basis. However, we can check your tax return later and ask you to show the records you used to complete it, so it's important to keep records to verify your claims.

    Income tests

    Income tests are used to work out your eligibility and entitlement for a number of offsets, benefits and obligations that are administered by us and other government organisations.


  • Last modified: 18 Jun 2014QC 31943