The Pinch of Taxes: Are You Paying Too Much?
Written by Bindi Gethen
Taxes, if we’re all being honest with ourselves, can feel like a straight-up robbery in broad daylight. And it doesn’t help when you read through articles filled with tax jargon. Let The Bookkeeping Studio explain things for you.
So why do you think you’re getting taxed so much in Australia? It might be one of six reasons:
- The country’s income tax rates seem higher compared to other countries.
- If you’re earning over a certain amount, there’s the Medicare levy surcharge if you don’t have private health insurance.
- The “Pay As You Go” (PAYG) withholding system can be imprecise, especially if your income varies.
- If you have more than one job, it’s possible to end up paying too much tax.
- Money earned from investments, like rental income or dividends, is taxed. Superannuation is taxed at a concessional rate.
- Somegovernment payments, like unemployment benefits or pensions, may be taxable. Others, like the Family Tax Benefit or Child Care Subsidy, are not.
Am I getting taxed too much? - Australia
Are you being taxed too much? Maybe.
Nobody wants to feel like they’re coughing up more than their fair share to the taxman. In Australia, the tax system is progressive, meaning you pay more as you earn more. Sometimes, it might feel like you’re bleeding money, especially if you’re hustling hard and climbing up the income ladder.
To determine if you’re being taxed too much in Australia, it’s important to consider several factors: income and tax brackets, Medicare levy and surcharge, the PAYG withholding system, number of jobs, investment and superannuation income, as well as government payments and allowances.
If you’ve considered these factors and still feel you’re being taxed too much, it may be wise to consult a virtual bookkeeper for personalised advice. They can provide a detailed assessment of your situation to ensure you’re paying the correct amount of tax (and taking advantage of every tax deduction).
Related articles:
What Is the Tax Rate? | Taxation Australia
Where Does the Tax Money of Australian Citizens Go To?
Tax Hacks for Tradies: Keep More of Your Hard-Earned Money
What Happens if You Haven’t Paid Taxes in 3 Years? | Australia
Key factors affecting taxation in Australia
1. Tax-free threshold and rates
The tax-free threshold is the amount of income you can earn without paying any tax.
In Australia, for the financial year 1 July 2023 to 30 June 2024, the tax-free threshold is set at $18,200. Any income above this threshold is subject to income tax based on the progressive tax rates – meaning the more you earn, the higher the percentage of tax you’ll pay on your income.
2. Medicare levy and surcharge
Your contribution to the public healthcare system in Australia comes in the form of the Medicare Levy. This is a small percentage (usually 2%) of your taxable income.
However, if your earnings surpass a certain threshold and you don’t have private hospital cover, you might face the Medicare Levy Surcharge. This surcharge isn’t just a tax; it’s a nudge to help balance the healthcare system. It aims to encourage individuals to take out private cover and reduce the demand on the public Medicare system.
3. PAYG withholding system
The Pay As You Go (PAYG) withholding system is how most Australians pay their income tax. Your employer calculates and withholds tax from your wages based on the information you provide in your tax file number declaration. This system helps in spreading your tax payments over the year, avoiding a large bill at tax time.
Pro tip
If you feel too much or too little tax is being withheld, reviewing your declaration and consulting with your employer or a tax professional could be beneficial.
4. Multiple job holders
If you have multiple jobs, it’s essential to consider the cumulative effect on your tax liability. While each employer withholds tax based on your income from that job, your total earnings may push you into a higher tax bracket.
Make sure all your employers are aware of your circumstances so that your tax is withheld accurately.
Pro tip
The tax-free threshold can only be claimed from one employer. If you don't adjust your tax declaration with your other employers, you could end up underpaying tax and facing a bill at the end of the financial year.
5. Investment and superannuation income
Income from investments and superannuation can also impact your tax liability.
Investment income, including interest, dividends, and rental income, is taxable. Similarly, certain superannuation contributions and earnings may be subject to tax. Understanding these implications can help you plan your investments more effectively and avoid unexpected tax consequences.
6. Government payments and allowances
Government payments and allowances, such as JobKeeper, JobSeeker, or Youth Allowance, may be taxable and should be accounted for in your tax return.
Government support, whether for unemployment or education, is there to help you through tough times. These payments often have specific tax treatments, reflecting the government’s intention to support you while maintaining fairness in the tax system.
Tools and resources for tax calculation
To determine whether you are paying too much tax, you can utilise various tools and resources available to Australian taxpayers:
Australian Taxation Office (ATO) online services
The ATO website is a treasure trove of information. It offers detailed guidelines, tax calculators, and tools that can help you understand your tax obligations and estimate your tax refund or payable amount.
Tax calculators
There are various online tax calculators provided by the ATO and other financial advisory services. These calculators can help you estimate your income tax, understand the impact of Medicare levy, calculate deductions, and more.
Mobile applications
Apps like the ATO app provide convenient access to tax calculators and other tools, making it easier to manage taxes on the go.
Financial planning software
For those who have more complex tax situations, especially involving investments, superannuation, or business income, using financial planning software might be beneficial.
Special considerations
Tax for young workers and students
You might be eligible for certain tax offsets or deductions, particularly if you’re juggling education and work. Also, if your income falls below the tax-free threshold, you should still understand your filing obligations.
Residency status impact
Your tax liability in Australia significantly depends on your residency status. Residents for tax purposes are taxed on their worldwide income, while non-residents are taxed only on their Australian-sourced income.
Related articles:
Let’s Talk Business: Minimum Wage Increases in Australia
A Taxing Problem: How Taxes Affect Small Businesses
Frequently Asked Questions
Yes, you can lodge your own tax return, and many Australians do. However, if the process feels overwhelming, or if you’re worried about missing out on deductions, it may be beneficial to seek help. A virtual bookkeeper can assist you, potentially leading to better tax outcomes.
If you’re concerned that your accountant isn’t helping you optimise your tax situation, it’s absolutely okay to seek a second opinion. Trust and communication are key in the client-accountant relationship. If you’re not feeling confident or understood, it might be time to look for someone who better aligns with your financial goals and who can provide the support you need.
Learn how to minimise your tax payments with The Bookkeeping Studio
Feeling like you’re paying too much tax is a valid concern, and it’s important to feel supported in this process. Your situation is unique, and the tax system, while complex, is designed to be fair and equitable.
If you’re feeling the pinch from taxes and want to make sure you’re not paying more than you need to, it might be time to get some expert advice. The Bookkeeping Studio specialises in helping individuals and businesses understand their tax obligations and find ways to minimise their tax payments legally and effectively.
Whether it’s understanding how to leverage deductions, manage investment incomes, or navigate the complexities of multiple income streams, we’re here to help you keep more of your hard-earned money. Take the first step towards smarter tax management today.
*Please note that the information provided in this blog post is general in nature and should not be considered personal financial advice. It’s always recommended to consult with a finance professional regarding your specific circumstances.
Hey, my name’s Bindi Gethen! I’m the founder of The Bookkeeping Studio in Australia. With over 15 years of experience in the industry, I have a deep understanding of the challenges that small and medium-sized business owners face when it comes to managing their finances.
I am passionate about empowering my clients with the financial information they need to succeed. My team and I pride ourselves on our commitment to exceptional value, accuracy, and confidentiality. Our virtual bookkeeping services include payroll, budgets, and management reporting, among others.
Not to toot our own horn, but we can assure you that you won’t find a bookkeeping partner like us anywhere else in the Southern Highlands.
