What is taxable income?
Ever wondered 'What is taxable income?' Find out more in our Financial Jargon Buster video.
The amount of income tax you’re required to pay is based on your Taxable Income. Find out more about how your Taxable Income is calculated by watching this jargon buster video.
When you earn an income in Australia you are required to pay part of it to the government to help them provide services such as schools, hospitals, roads, police, social security and the like. This is known as Income Tax. The amount of income tax you are required to pay is calculated on your taxable income. So, what is your taxable income? In short, it is most of the regular income you receive, less certain deductions.
So, any income you receive from employment, pensions, government payments, investments, trust fund distributions, business profits, and capital gains is part of your taxable income. Any income you receive from lottery wins, gifts, child support and some other government payments is not included in your taxable income.
Then there are certain expenses that you can request a deduction to reduce your taxable income. There are certain work-related expenses you can claim for things that you need to be able to do your job and earn an income. This can include things like work-related travel costs, special clothing, home office expenses, tools of trade, and even self-education.
To claim these expenses, you need to have physically spent the money yourself and have documentation to prove it. There are lots of dos and don’ts around claiming work-related expenses so make sure you get advice from an accountant or check out the ATO website for more information.
The other common expenses that you may be able to claim a deduction for are gifts or donations to registered charities, the costs of managing your tax affairs such as an accountant’s fee, and personal after-tax superannuation contributions. There are others however they are more complex and not as common.
So, in brief, your taxable income is the income that the tax office calculates your income tax on … being your total income less any allowed deductions. Look for ways to reduce your taxable income to minimise the amount of tax you’ll pay.
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