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  • Why you may receive a tax bill

    You may receive a tax bill if you:

    • are an employee and enough tax hasn't been withheld from the payments made to you by your employer
    • are a sole trader and haven't paid enough tax to the ATO throughout the year
    • receive other income where no tax was withheld.

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    Tax withheld

    You may receive a tax bill if you have not had a sufficient amount withheld from your income throughout the year to meet your tax obligations. This may occur in the following circumstances:

    • you move to a higher tax bracket – for example, through promotion, multiple or extra sources of income
    • you have incorrectly made multiple claims for the tax-free threshold
    • your income increases leading to a higher repayment threshold for your study or training support loan
    • you have a study or training support loan that is not reported to an employer on a tax file number declaration
    • you need to pay the Medicare levy or Medicare levy surcharge (MLS) or the amount of private health insurance rebate you receive changes
    • a change in income affects your single or family income threshold for relevant tax offsets or rebates
    • you are the recipient of Australian Government allowances and payments.

    Tax is not withheld from the following income sources:

    • a capital gains event occurs where you receive additional income through the sale of a capital asset such as real estate or shares
    • you receive income from a business, partnership or trust
    • you receive income from property investments (including the sharing economy), dividends on shares, interest or returns on any other investment you earn income as a sole trader.

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    How to prevent a tax bill

    Most people who earn income as employees have tax payments made on their behalf throughout the year through pay as you go (PAYG) withholding to help them meet their annual tax obligations.

    However, if you earn income that does not have tax withheld or does not have sufficient tax withheld the following methods could help you prevent a tax bill.

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    Increasing tax withheld from payments

    If the total amount of tax withheld through PAYG withholding is not going to cover your estimated annual tax bill, you can ask one or more of your payers to increase the amount of tax they withhold. This is known as an upward variation.

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    Voluntary entry into PAYG instalments

    If tax is not withheld when you receive payments from income earned as a sole trader or investments, you can voluntarily enter into PAYG instalments. This is a way of prepaying tax and reduces the chances of having to pay a large amount at the end of the income year.

    We recommend voluntary entry into PAYG instalments if you are in your first year of business as a sole trader. You can arrange voluntary entry into PAYG instalments online (via myGovExternal Link).

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    Tax prepayments

    You can make tax prepayments any time and as often as you like to make it easier for you to manage your tax. We will hold the prepaid amounts you make towards your expected bill unless you, or your agent, request a refund.

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    Consider the impact of selling a capital asset

    When selling a capital asset for a gain, consider the impact the gain will have on your assessable income. You may want to put aside enough to cover the extra tax payable, or use one of the options identified above; choosing the approach that best suits your personal circumstances.

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    How much tax to set aside

    Use our simple tax calculator to estimate how much tax you are likely to owe so you can plan how much money to set aside or pay through PAYG instalments or prepayments.

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    Last modified: 01 Jul 2020QC 54461