An Accountant’s Guide to Understanding Your Tax Return

As a tax agent, I often find that clients are perplexed by the intricacies of their tax returns. Understanding your tax return is crucial for ensuring accuracy and recognising how your financial activities impact your tax liabilities. Here’s a simplified guide to help you understand the key elements of your tax return.

1. Personal Information Section

  • Verification: This section includes your basic personal information – your name, Tax File Number (TFN), address, and date of birth. It’s essential to verify these details for accuracy.

2. Income Section

  • Diverse Sources: Here, all sources of income are reported, including salary and wages, interest from savings accounts, dividend income, and income from trusts or investments.
  • PAYG Summaries: For employees, the PAYG (Pay As You Go) summaries show the income earned and the tax withheld by your employer.

3. Deductions Section

  • Reducing Taxable Income: Deductions are expenses incurred in earning your income. This can include work-related expenses, charitable donations, and certain investment-related expenses.
  • Documentation: Ensure that you have documentation to support each deduction in case of an ATO audit.

4. Tax Offsets and Credits Section

  • Reducing Tax Payable: Tax offsets and credits can reduce the amount of tax you owe. Common examples include the low and middle income tax offset, franking credits from dividends, and private health insurance rebate.

5. Medicare Levy and Surcharge

  • Universal Healthcare Contribution: Most Australian taxpayers pay the Medicare Levy, which is calculated at 2% of your taxable income.
  • Additional Surcharge: The Medicare Levy Surcharge applies to high-income earners who do not have private health insurance coverage.

6. Calculation of Tax Payable or Refund Due

  • Net Amount: The tax return will calculate the total tax you owe for the year, subtracting the tax you’ve already paid (through PAYG or other payments). The difference is either the amount you need to pay or your refund.

7. Understanding Supplementary Sections

  • Additional Information: If you have more complex financial circumstances (like foreign income or capital gains), there may be supplementary sections in your return.

8. Review and Accuracy

  • Importance of Accuracy: It’s crucial to review each section carefully for accuracy. Any errors can lead to processing delays or ATO queries.
  • Seek Clarification: If there’s anything you don’t understand, it’s advisable to consult with a tax agent for clarification.

9. Electronic Filing and Assessment

  • e-Tax and myTax: Electronic filing platforms like myTax simplify the process and provide clear instructions and prompts for each section of the return.
  • Notice of Assessment: After your return is processed, you’ll receive a Notice of Assessment from the ATO, summarising your tax liability or refund.

Understanding your tax return is essential to ensure you are accurately reporting your income, claiming all eligible deductions, and understanding your tax obligations or refunds. It empowers you to make informed financial decisions and plan effectively for future tax years. If you’re ever in doubt, don’t hesitate to reach out to a tax professional for advice and assistance.