• What is income?

    Australia’s taxation system relies heavily on personal income tax, so it is important to understand what we mean by income.

    You can receive income as a result of your personal exertion (that is, by working) or from an investment. Income may not always be in the form of money – in some situations goods and services may be treated as income.

    Amounts you receive as gifts or win as prizes are not usually treated as income.

    The three most common classifications of income are:

    1. assessable
    2. exempt
    3. taxable.

    Assessable income

    Assessable income is income that can be taxed, provided you earn enough to exceed your tax-free threshold. Examples of assessable income are:

    • salary and wages
    • tips, gratuities and other payments for your services
    • allowances for things like car, travel, clothing and laundry
    • interest from bank accounts
    • dividends and other income from investments
    • bonuses and overtime an employee receives
    • commission a salesperson receives
    • pensions
    • rent.

    Note: If you are being paid cash including cash cheques, you must declare the cash as income when you lodge your tax return.

    Exempt income

    Exempt income is income that cannot be taxed. Examples of exempt income include:

    • some government pensions and payments, including the invalidity pension
    • some education payments.

    Note: If the only income you receive during a financial year is exempt income you do not have to pay any income tax on it.

    Taxable income

    Your taxable income is the income you have to pay tax on. It is the term used for the amount left after you have deducted all the expenses you are allowed to claim from your assessable income.

    Assessable income – allowable deductions = taxable income

    The important thing to remember about deductions is that you apply them to reduce the amount of income you pay tax on, you do not deduct them directly from your tax amount.

    See also:

      Last modified: 11 Jul 2017QC 17709