The Australian Taxation Office (ATO) administers the Commonwealth income tax legislation

This covers the taxation of Companies, Partnerships & Trusts, Individuals and Superannuation Funds, and includes various types of taxes (eg income tax, goods and services tax, fringe benefits tax, Medicare Levy and Medicare surcharge, superannuation guarantee charge, superannuation surcharge).

We operate under a self assessment system.  Taxpayers lodge their income tax returns and apart from some computer based "exception checking" assessments are automatically issued based on the return lodged.  The ATO has field auditors and all returns are potentially subject to audit (ie more detailed checking by an ATO officer).

If a taxpayer discovers an error after lodging their return they can lodge an amendment.  Under these circumstances the penalty for late lodgment / payment is reduced.  In the case of a credit amendment the ATO will pay the taxpayer interest on the amount of tax overpaid.

If the ATO discovers a debit adjustment as a result of audit activity, there are a range of penalties depending on the circumstances of the case.  Innocent mistakes have a low penalty whereas deliberate fraud has higher financial penalties and possible gaol sentences.

A system of private binding rulings operates as part of the self assessment system.  This means that in the case of contentious items, a taxpayer can seek a ruling from the ATO before they lodge their return.  This gives taxpayers certainty that they are not exposing themselves to the risk of penalties in the event of an audit by the ATO.  If a taxpayer is dissatisfied with a decision of the ATO they can have the matter referred to the Administrative Appeals Tribunal, or they can pursue the matter through the courts.

Every entity has a unique Tax File Number (TFN) and entities operating a business have an Australian Business Number (ABN).  There are privacy provisions surrounding TFN's and it is an offence to disclose a person's TFN to anyone other than the ATO.  We must protect the privacy of our clients TFNs.  The ATO uses this system of TFNs and ABNs to regulate the proper collection and payment of income tax.

Every person who seeks employment or enters into an income producing investment is invited to quote their TFN.  Failure to quote a TFN will result in the financial institution withholding income tax at the rate of 46.5% (ie the top personal rate of tax plus Medicare levy).  The employer / financial institution passes this tax withheld on to the ATO and the taxpayer receives credit for the tax paid when they lodge their return at the end of the financial year.

In a similar way, a business that fails to quote its ABN to a business customer will have 46.5% tax withheld from the payment they receive, and they will need to include the income in their annual tax return in order to receive the credit for the tax withheld.

Individuals pay income tax on a progressive rate scale.  There is a tax free threshhold for resident taxpayers of $6,000, after which tax is paid at 15 cents in the dollar.  The highest marginal rate is 45% which applies to taxable income in excess of $180,000.  The 2010/11 table for resident individuals is as follows:-

 

$0-$6,000                   Nil

$6,001-$37,000          15c for each $1 over $6,000

$37,001-$80,000        $4,650 + 30c for each $1 over $37,000

$80,001-$180,000      $17,550 + 37c for each $1 over $80,000

Over $180,000           $54,550 + 45c for each $1 over $180,000

From 1 July 2011 the rates will be the same but there will be a one off flood levy as follows:-

 

$0 - $50,000               Nil

$50,001-$100,000      Half a cent for each $1 over $50,000

Over $100,000            $250 + 1 cent for each $1 over $100,000

Non Resident taxpayers do not enjoy the tax free threshhold and have a separate rate scale.

Resident individual taxpayers are also subject to a medicare levy of 1.5% of taxable income.  There is a threshhold before the medicare levy applies to individuals and there are also family threshholds that apply based on family income and the number of dependents.  For more information refer to the ATO Medicare Levy Guide.

Individual taxpayers may be able to claim a range of deductions against their assessable income.  Please refer to the Rates and Calculators section for a checklist of deductions for individual taxpayers.

A range of Tax Offsets are also available.  An offset is different to a deduction in that an offset does not reduce taxable income but reduces tax otherwise payable.  The most common forms of tax offset are for net medical expenses in excess of $2,000, the 30% offset for private health insurance and the range of offsets available to low income earners, pensioners and senior Australians.  These offsets have the effect of raising the tax free threshold for taxpayers that come within the relevant income bands.  A comprehensive list of Tax Offsets is available on the ATO website.

Companies pay tax at a flat rate of 30%.

Superannuation Funds pay tax at 15% on contributions and 15% on earnings.  Earnings from pension assets are exempt from tax.