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I've just started working in Australia and the way taxes work here are quite new to me.

I've read somewhere (can't find the link!) that the maximum tax refund you can get per year is $18.5k.

Does that mean that if my total taxes deducted from work is less or equal to $18.5k, I get to refund them all at the end of the financial year?


Note : This might sound like a novice question or something easily looked up over the net, but with tax and money issues, I can never be too sure, and I think the best source would be an experienced Australian worker. Thanks.

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The Australian Tax Office website shows Tax Rates for individuals based on the income earned in the Financial Year.

Calculating what you'll be taxed

For instance, it show that every dollar you earn up to $18,200, you are not taxed. Every dollar over that, up to $37k is taxed at 19 cents. And so on..

Example 1

So as an example, if your income for the year is $25,000 you will be taxed $1292.

Working:

$25,000 - $18,200 = $6,800
6,800 * 19 cents = 129200 cents (ie $1292) payable tax

Here's how it's look if you were doing it in a spreadsheet using the Tax Rates table on the ATO website as a guide:

enter image description here

Example 2

If you income is $50,000, it'd look like this:

enter image description here

Withholding

Your employer is obligated to remove the taxable part from your wage each time your paid. They do that using the calculation above.

If at the end of the financial year, the ATO determines that too much as been withheld (ie. you've claimed deductions that've reduce your taxable income to less than what your actual income is), that's when you may be eligible for a refund.

If your employer didn't withhold enough or you had income from other sources that haven't been taxed already, then you may actually need to pay rather than expecting a refund.

Your question

If you earn $18,200 in the year and for some reason your employer did withhold tax from your pay, say $2,000, then yes, you'll get all that $2,000 back as a refund since the Tax Rate for income up to $18,200 is $0.00.

If you earned $18,201 and your employer withheld $2000, you'd get $1999.81 back as a refund ($2000 - 19c). You have to pay 19c tax on that $1 over $18,200.

  • Wow.. sorry about that. I've fixed the calculation. Does that make sense now, or do you still need me to explain? – Turgs Oct 14 '14 at 4:51
  • I think I understand now. So basically, the taxable income should be annual income - 18200. And if I get taxed higher than that, I get refunded the offset. Is that correct? – Mark Gabriel Oct 14 '14 at 4:54
  • I've added some more just to be clear. – Turgs Oct 14 '14 at 5:15
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    @MarkGabriel: Putting it like that might confuse people. All your income is "taxable income". The tax rate for the first $18,200 of your taxable income is 0%. The tax rate for the next $18,800 is 19% and so on. If you are asked what your taxable income is and you subtract $18,200 all the calculations would be wrong and you'll get into trouble. – gnasher729 Oct 14 '14 at 11:42

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