Explainer: Students and tax

8 August 2017

Written by: Claire Morley

Fear not at tax time: here's what you need to know.

With the past financial year well and truly behind us, it’s time for every income-earning Australian citizen to lodge their tax return.

With the deadline looming, it’s common to read social media posts from students expressing their stress and aversion to lodging a tax return, believing they’re not adequately prepared. These young adults, some only beginning their independent lives, have usually never had to lodge a tax return unassisted before.

However simple the process may seem to some, understanding the tax system is not instinctual. It does not feature in the Australian high school curriculum. Instead, it’s a skill that very few people are properly taught to use and understand.

With this in mind, the online fear is an entirely understandable attitude. It’s a daunting process, especially for students who, on average, earn very little income. But according to the experts, the Australian Tax Office is nothing to be afraid of.

“[Fear of completing a tax return], it’s a big brother attitude. You really shouldn’t be scared of the tax office, especially not when you’re a student. You should be happily declaring your income,” Martin Warwick, chartered accountant and CEO of Warwick Accounting tells upstart.

Lodging a tax return each year contributes greatly to a university student’s future, Mr Warwick explains. The ease of big, life-altering decisions, such as applying for a bank loan, will be affected by a history of correctly lodged tax returns.

“I think in actual fact, people should understand that they should be lodging their tax returns to give them a foundation for when they would like to really join the world.”

WHAT IS TAX AND WHY MUST I PAY IT?

Tax is the money individuals pay to the government so that necessary services like health, education and social security remain active and accessible.

In the interest of keeping things fair, at the end of every financial year – that’s 30th June each year – all Australian citizens who have earned income must complete and lodge a tax return, a system to work out how much tax a person should have paid that year.

In a tax return, individuals report the income they’ve earned throughout the financial year, including employment income, government payments, investment income, crowd-funding income, and business and trust income.

Anyone who earns under the tax-free threshold, which currently sits at $18,200, is not required to pay tax.

“A tax return is the responsibility of every Australian, if they are in fact, required to lodge one, according to their income. Even if you earn under the tax-free threshold, you probably would like to lodge a tax return, as often you will have tax withheld from your employer, and you can get a tax refund,” Mr Warwick explains.

Upon completing your tax return, you’ll receive a Notice of Assessment. If you’ve paid more tax than you needed to, for instance, had tax withheld from your employer despite earning under the tax-free threshold, you will receive a refund. Your Notice of Assessment will tell you how much this will be.

If you have not paid enough tax, your Notice of Assessment will instruct you on how much you need to pay, and when.

Using the services of an accountant at tax time is almost always unnecessary while studying.

Instead, students should be sure to take advantage of MyTax, the Australian Government web-based program offered to simplify lodging a tax return online. Linked to MyGov, MyTax automatically fills information provided by your employer, banks, and government agencies such as Centrelink, though it’s best to crosscheck these amounts with PAYG summaries provided by employers and Centrelink.

With most of the form already filled in, lodging a tax return with MyTax is far simpler than it sounds.

WHAT’S THE DEAL WITH DEDUCTIONS?

It’s not uncommon to hear people talk about claiming costs back on their tax. This kind of discussion relates to the process of deductions.

While completing your tax return, you are able to reduce the amount of tax you pay by claiming deductions for expenses directly related to earning your income, such as laundering a uniform, or particular forms of travel.  If you have had tax withheld, and earned under the tax-free threshold, or have deductions to claim, you will receive a refund. If you’ve not paid any tax, you receive no refund.

“Everyone thinks that deductions equal a tax refund, but you only ever get back, and I want to stress this, the tax you have paid,” Mr Warwick says.

However, for the average student, deductions are not something to think about yet.

“Don’t complicate things. The $18,200 threshold is there. If you’re not reaching that, don’t go searching for tax deductions. If you are lucky enough to have a job that’s paying you in excess of $18,200, then you need to work out all those things that are deductible for you.”

HELP IS AVAILABLE

If your yearly income is $60,000 or less, you may be eligible for the ATO’s Tax Help Program. These programs can put low income earners in touch with trained volunteers, who provide confidential, and free, assistance.

If you have not paid enough tax, and you don’t have the means to pay the correct amount right now, you’re not about to have your life stripped away.

If this is the case, don’t stress. If for any reason you’re having difficulty paying, you can contact the Australian Tax Office to organise a payment plan.

Benjamin Franklin said that nothing is certain but death and taxes, and perhaps that’s why the ‘t’ word strikes such unnecessary fear into the hearts of many.

And though some groaning at the idea of giving up their hard earned dollars may have you think otherwise, paying tax is entirely fair.

Putting a portion of one’s earnings towards creating a better country is far from a bad idea, and the Australian tax system is designed to make sure no one is losing out more than they can afford.

Claire Morley is a third-year Bachelor of Media and Communications (Journalism) student. You can follow her on Twitter @ClaireMorley_ or read her blog Vanity Claire.