Tax Returns in Australia – An Outline

In Australia, tax returns are generally due on October 31 for the year ending June 30 in the same calendar year. The financial year runs from July 1 to June 30. Contrast this with USA whose fiscal year runs from October 1 to September 30. Extensions to the due date are available, especially when the tax return is submitted via a tax agent. Tax returns may be submitted by post or electronically using the ATO’s e-Tax software.

The Australian taxation system is perceived to be quite complex and this view is supported by the fact that close to 80% of Australian’s use a tax agent to assist with the preparation of their tax returns.

Australian businesses may be required to pay taxes to all levels of local, state and federal governments. In Australia these taxes are used to pay for the delivery of public services such as the public hospital system and roads.

Australian tax law defines stringent reporting requirements in relation to tax returns in Australia. The returns you are required to submit are determined by your business structure and operating conditions. This outline considers sole traders, partnerships, trusts and companies. It also touches on the issue of fringe benefits tax.

Income Tax

Income tax is imposed by the Federal Government in Australia and so is consistent across all states. This has not always been the case. Prior to World War II income tax was imposed by the various State Governments. It is the most significant ax providing the greatest contribution to public revenue.

A company must lodge a company tax return. The income tax of the company is different from your personal income tax for which you need to lodge a personal return. The return will show the company’s net income which is the amount of income less allowed deductions. The corporate income tax rate is fixed at 30% of the net taxable income which is at a similar level to the United States, Mexico, New Zealand, Turkey and the United Kingdom (source: OECD Tax Database). Compare this to to Hungary’s 16% and the Slovak Republic’s 19% and at the other end of the scale, Spain with a corporate tax rate of 35%.

A Trust must lodge a trust tax return specifying its income less expenses and deductions. The beneficiaries of the trust, must also report any income or benefit received from the trust. This includes any assessable income such as salary, wages, dividends and rental income.

A partnership must lodge a partnership tax return. The return must show the net income which is calculated by subtracting expenses and other deductions from the gross income. Each partner must report their share of the partnership net income, salary or wage, dividends and rental income in their individual return.

A sole trader operates their business in the name of the owner. Their taxable income or loss is reported in their individual return as well as any other income in the form of salary and wages, dividends and rental income, minus any deductions that are allowed to be claimed against these amounts.

Both partnership and sole trader tax returns are effectively reporting on the income of the individual rather than on a corporate entity. Individual tax rates are calculated on a progressive scale as opposed to the corporate tax rate which is a flat percentage across the whole income range.

Business Activity Statement (BAS)

Businesses with turnover greater than $75,000 p.a. ($150,000 for non-profit organisations) are required to submit a GST return, commonly called a BAS. Business falling below the threshold may still elect to become GST registered and would then need to lodge a GST return. Except for Canada which has a value added tax rate of 7%, Australia’s GST, ay 10%, is the lowest in comparison to other countries. For example, New Zealand’s is 12.5%, the UK’s is 17.5% and Ireland’s is 21%. The GST system was introduced in Australia in July 2000 by the Howard Government and replaced other taxes such as the state based sales tax. The income derived from the GST is distributed to the states to enable the provision of state based public services such as education.

Fringe Benefit Tax (FBT)

Fringe Benefit Tax (FBT) is a tax that is paid on specific benefits employees, or their associates, receive from an employer in lieu of salary or wages. Common examples are: low interest loan, company car and some entertainment benefits.

Categories of Individuals Who Need to File UK Tax Return

Self assessment tax return in UK is a process of filling out your incomes and tax obligations either online to the HM Revenue & Customs (HMRC) website or manually by sending a UK tax form to the tax authorities. For those eligible, one needs to send the tax return manually by 31 October or online by 31 January of every year. Only specific categories of income earners need to fill out these returns. These categories are provided below.

Self Employed

Any resident or citizen of the UK who is self employed or is a member of a partnership is expected to fill out their self assessment UK tax form before the deadline.

Ministers, Directors of Companies, Trustees and Lloyd’s Members

Besides the self employed, ministers of any religious faith, any name or member of Lloyd’s and any director of a commercial company is also expected by law to submit their returns. However, directors of companies that are charitable (Non Profit) do not need to submit if they do not receive any form of allowance from the company. Trustees and personal representatives are also required to fill out their tax return.

Income from Property, Investments and Savings (Above a given limit)

Individuals who receive income from savings or investments of any kind in excess of £10,000 are also required to file out the returns for UK tax. This applies whether the incomes are taxed or not. However, if the incomes from your savings and investments are not taxed at all, then you will need to fill out your returns for amounts above £2,500. Individuals with a net income from property in excess of £2,500 will also need to file returns. Anyone receiving income from annual trust or from a settlement will also file out returns for UK tax if tax is still due even if they are just receivers and not beneficiaries of such income. Anyone receiving income from a deceased person on which tax is still due is also mandated to file returns before deadlines whether or not they are the final beneficiary of this income.

Individuals above 65 Years

Individuals who are over the age of 65 years old and receive a reduced allowance because you are over 65, you will need to fill out your tax return. However, you will need to do so if your annual income is in excess of £22,900 for the 2010 to 2011 financial year. The limits keep changing and you will need to confirm with the HMRC Self Assessment Helpline for the applicable rates in a given year. Furthermore, if your taxes are paid and straight forward, you do not need to file the returns. You can confirm with the helpline for your specific situation.

Income From Abroad or For individuals Working Abroad

Individuals receiving foreign income that is eligible for UK tax require to fill out the tax form for returns. This also applies to non residents making income from UK, Non domicile individuals claiming ‘remittance basis’ and individuals with dual citizenship of which UK is one of the citizenship.

Certain Circumstances for Employment Income

Individuals who earn income in excess of £100,000 will also need to fill out their tax return whether their income is straightforward or not. This also applies to individuals who claim non-common reliefs such as relief on Venture Capital Trusts or relief on Enterprise Investment Scheme. Individuals also seeking claims for professional subscriptions in excess of £2,500 are also required to file their returns. Individuals who earn employment income and owe tax at the end of a given year may require to fill out a tax return if they do not wish to or cannot pay this tax through their tax code.

Capital Gain Tax

If you owe UK tax from capital gains from sale of assets, you are required to also fill out the tax for for returns.

Six Frequently Asked Questions About Unfiled Tax Returns

Several taxpayers have not filed taxes for nearly a decade. In fact, some have never filed their taxes. So many wonder about what will be the statute of limitations for unfiled tax returns. Some people are not in a position to pay the IRS, so they wonder if it is better to file only after when they can afford or if they should file in any case. Some have doubts about whether the officers will ask for up-to-date tax returns when they file for bankruptcy or apply for a passport. Some are concerned if they’ll be arrested for not filing returns.

This article will provide answers to the most frequently asked questions about unfiled tax returns.

Suppose I haven’t filed tax returns for years. Do I need to file all the missing returns?

The IRS does not have any time limit to recover taxes if you never filed a tax return – the statute of limitations never run out. But they have only limited resources, so the policy is that the taxpayers must file returns for the past 6 years in order to become tax compliant. In certain cases, you may be required to speak with a tax lawyer to determine if you need to go back even further.

Many has changed during the last 10 years and now, the IRS is getting much better at identifying people’s income sources and preparing a Substitute Filed Return (SFR) for taxpayers. So if SFR is filed against you, then you will have no choice rather than to file returns for all those years that’s mentioned in the SFRs.

What if I owe back taxes but can’t pay? Should I really have to file anyway?

Absolutely! It is okay to owe the IRS back taxes, but failure to file tax returns will be considered as a crime.

So even when you can’t pay anything to the IRS, it is still in your greatest interest to file your return. And the perfect time to have negotiation with the Internal Revenue Service is when you’ve got less money to pay for. In IRS terms, this is called as “Reasonable Collection Potential” (RCP). Deal with the IRS, when your RCP is lowest.

How big is the IRS penalty for unfiled tax returns?

This is exactly what the IRS says:

“The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS will work with you.”

So never try to avoid filing returns just because you can’t pay for the tax money owed. Just file. You can do something about settling your tax debts later on.

Do I have to file all back taxes before I file personal bankruptcy?

Yes! you have to. Also by filing bankruptcy, it is possible to discharge most of your owed taxes. But to achieve this, you need to show your filed taxes to the bankruptcy court for all those years that you want to get discharged of the tax debts. For many people, non-filing of taxes became a huge hurdle for them in getting the bankruptcy discharge. So file all of the missing returns before applying for personal bankruptcy.

Can I get the passport if I owe the IRS for back taxes?

In general, passport issuance will not be denied merely because you owe money to the IRS however the state government has the ability to deny or revoke your passport for certain tax violations. When the passport issuance is denied, you must pay the tax arrears along with penalties and interest to have the denial lifted.

How can I file old returns if I don’t have all the information?

The law wants people to do old returns to the best of their knowledge. But you may ask how to get the old tax records and financial details? Here, with the help of an IRS tax attorney, you can obtain all the missing information. They will quickly get all of the old tax forms such as 1099s and W -2’s through by pulling the W&I transcript from the Internal Revenue Service. For old property bills, the IRS attorney will get in touch with city assessor and collect particulars from them. For business owners, these tax professionals will create profit and loss statements from their old bank account statements.