Income tax is calculated as your assessable income less allowable deductions. Gross tax on taxable income can be reduced by tax offsets to reach the net tax payable or refundable.
Income tax is paid on money you receive, or your assessable income, such as:
- Salary and wages
- Centrelink payments
- Investment income from rent
- Profits from selling shares or property
You can reduce the amount of tax you pay, or your allowable deductions, by claiming certain deductions that are directly related to earning your income. Your tax may be further reduced if you are eligible for certain tax offsets or government rebates.
Sole traders must declare business income on their individual returns as they are not required to complete a separate return for their business.
Tax on ondividuals is charged at marginal rates.
A company is an entity that has a separate legal existance from its owners and is required to lodge its own Income Tax Return.
The tax rate for companies is generally 30% however there are varied rates that can apply to certain types of companies, or companies in certain industries.
A partnership is the association of two or more people who carry on a business as partners and distribute the income or losses between themselves.
Whilst a partnership does not need to pay tax on it’s income, a partnership Income Tax Return must be lodged which delcares all income earned and all deductible expenses. It also needs to show how the net income or loss has been distributed between the partners. The income or loss from the partneship is declared in each partners individual tax return. They must declare their individual share of income or loss whether or not they have actually received the income.
Trusts are created for various reasons such as, providing on-going support for a beneficiary under your Will, to provide tax effective estate planning or to benefit a charity.
A trust is not a separate taxable entity. Despite the fact that trust income is usually filed by the trustee and they may be liable to be assessed and to pay tax in whole or part of the trust income, it is the beneficiary who is ultimately entitled to receive and retain trust income. This income is taxable on the net income as defined for income tax purposes. The trustee is generally taxed only on the balance of the net income as defined for tax purposes. This is the case even if the beneficiaries did not actually receive the income.
An exception to this is that you don’t need to declare a trust distribution if family trust distribution tax has already been paid.
A superannuation fund is a way of saving money for your retirement. They are a distinct legal entity with its own income tax liability and is requried to lodge their own Income Tax Return.
The income of a superannuation fund is generally taxed at a concessional rate of 15%. In order to be entitled to this rate, the superannuation fund has to be a ‘complying fund’ that follows the laws and rules. For a non-complying fund, the rate is the highest marginal tax rate.