Income You Must Declare on your Tax Return
In Australia, when you earn an income, most likely you will have to declare that income on your tax return. With the advancement of data matching and reporting, most of this information is already pre-filled on your income tax return if you were to lodge your tax return online. However, at times, especially where you are a sole trader or you undertake cash jobs on the side, you will need to declare this income manually on your tax return.
Let’s look at the different types of income you might have received.
Employment and foreign income
Simply put, employment income is money you earn from working. For some, they are paid cash in hand, others, directly into their nominated bank accounts. Regardless of whether you have one, two or three jobs; full-time, part-time or casual; it is your responsibility to make sure all of your employment income is included on your tax return.
Salary and wages include your normal weekly, fortnightly or monthly pay; commissions; bonuses; money for part-time or casual work; parental leave pay; payments from an income protection policy, sickness or accident insurance policy or a workers compensation scheme; pay and allowances for continuous full-time service in the Australian Naval, Army or Air Force Reserve; and foreign employment income.
Many people forget that the income they earn overseas must also be declared on your Australian tax return. Heavy penalties apply for not accurately declaring income on your tax. it can be a good idea to take basic accounting courses at edna.edu.au if you are thinking about doing your taxes without the help of an accountant. Once you have mastered the basics you can move onto learning more advanced accounting principles by enroling in a diploma of accounting – details about this qualification can be found here.
Super pensions and annuities
Any pensions and annuities received must be declared in your tax return.
A superannuation pension generally is a series of regular payments made as a super income stream made by an Australian superannuation fund, life assurance company or retirement savings account provider. In each super income stream payment, there are three components which need to be declared – the taxed element, the untaxed element, and the tax-free component.
An annuity payment is generally a series of regular payments to you by a life insurance company in return for a lump sum payment. Most annuities have both taxable and tax-free components and the taxable portion of the payment will be included in your assessable income when received, this includes annuities received by you as a reversionary beneficiary.
Any income received from the Australian Government such as the aged pension, carer payments, Austudy, Newstart and Youth Allowance must be declared on your tax return and can be taxable. Other payments such as the disability support pension, child disability allowance, carer adjustment payment and Veterans’ Affairs disability pensions and allowances must also be declared but you won’t have to pay any income tax on these payments.
Investment income needs to be declared whether or not it is paid directly to you or through distributions from a partnership or trust. Investment income such as interest payments, dividends, rent, managed investment funds and capital gains must be declared in your income tax return.
Business, partnership and trust income
The net income you receive from carrying on a business is assessable income and you need to declare when submitting your tax return, this includes business you run as a sole trader and as a partnership. So whether you are an artist, a trades person, a jewelry maker, a baker, you will need to declare this income.
It is important to note that whilst a business partnership does not pay any tax on its income, it must lodge a partnership tax return declaring all income earned and all deductible expenses. It will show how the net income or loss was distributed between the partners and the individual partners must declare their individual share in their individual tax returns.
In a trust, the trustee is required to lodge a tax return for the trust. It is the beneficiaries’ duty to declare the amount of income they receive in their own tax returns and pay tax on it. The only exception to this is a family trust distribution tax has already been paid. It is best to speak to your accountant about this.
Interestingly, as more and more people use crowdfunding for their own personal purposes, the tax office has now released guidelines as to whether you are required to pay income tax on the amount received.
If you earn or receive money through crowdfunding, some or all of it may be assessable income. This will depend on the nature of the agreement, your role in it and your circumstances. Speak to your accountant for more information.
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