With the cost of living on the rise, the last thing you need is to be shocked by a tax bill.
Discover my tips for keeping on top of things for EOFY.
Most people run into tax problems when they have
- More than one job
- A full-time job and a side hustle
- Contract to multiple businesses and don’t put aside money for tax
The Tax-Free Threshold
In Australia, you can earn up to $18,200 each financial year tax free. Sounds like great news, right? However, if you have a couple of different jobs you’re juggling and both employers claim the tax, then you’ll end up paying tax on that extra $18,200.
Alternatively, if you have multiple jobs, you may find that the combined income bumps your income up to the next tax bracket. That will also result in a tax bill for a portion of your income.
What should you do?
Choose the job that is your main source of income and elect that employer to apply the tax-free threshold. Ensure that if you are contracting or working a number of different jobs that you ask your employer to tax you at a higher rate. For example, Aimee works in digital marketing for a company, but she also has a job at a Gold Coast theme park during the weekends. It would be in Aimee’s best interest to ask the digital marketing company to claim the tax-free threshold on her behalf and ask the theme park to charge her the tax rate for a secondary job.
Also, if you have worked from home during COVID-19 be sure to claim for your expenses because 2021-2022 is the last year you can use the shortcut method. And keep good records—receipts for PPE wear required for work, self-education that is related to your career, travel for work etc.
Set aside a separate savings account to put tax aside
Regardless of whether you PAYG or have elected to pay tax at the end of the financial year, it’s a good idea to have a separate savings account to put your tax aside. Even better, if your extra income is from a side hustle and you can put aside the whole amount into an interest-earning account and not touch it until tax time, you’ll earn some interest, and have a healthy looking emergency buffer/holiday fund.
You’ll have a tax bill, but you’ll have the money you’ve set aside to pay it and if you’ve kept good records for your tax deductions, you should find you’ll have a nice little cash injection to a) invest back into your business b) use as an emergency buffer fund c) top up your super d) or take that long awaited holiday to Hawaii.
Guideline to the current thresholds
The current tax thresholds for Australian residents are listed below to give you an idea of how much to save:
|Taxable Income||Tax on Taxable Income|
|0 – $18,200||$NIL|
|$18,201 – $45,000||19 cents for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||$29,467 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45 cents for each $1 over $180,000|
If you have earned more than $18,200 in profit during 2021-2022, be sure to save 19% of every dollar until you earn more than $45,000. Once your wages reach $120,000, it goes up too.
So if you have made over $18, 200 in profit for the year, put aside 19% of every dollar until you have earned $45,000. Then additionally put aside 32.5% until you reach $120K etc.
Pay yourself a salary first
If you’re running your own business and it’s structured for tax purposes as a company, it would be beneficial to make your priority to put yourself on a salary. Many business owners put themselves last. The reason for this is you can pay salary tax when you pay PAYG to your staff. This will make it simpler to borrow money in your name which will be helpful if you want to purchase a family home.
Hire an accountant
A certified accountant will be able to ensure you’re doing everything by the book. This can avoid any nasty tax bill shocks and allows you to claim all of your entitlements to make sure you’re not missing out on valuable deductions. They will also be able to tell you what records you need to keep, how you need to present your records (i.e.: not in a shoebox) and liaise with the ATO on your behalf. Keep in mind, not all accountants are created equal, so if you have a complicated business trust set up or multiple overseas businesses, make sure you hire someone that has the necessary experience.