Tax glossary: Common tax terms used in Australia

Forget compiling all your receipts, invoices and financial statements – sometimes it can feel like successfully filing your tax return requires learning another language.

The financial world is full of particular terms and names that can be difficult to decipher and although they might sound similar, actually have different and very specific meanings.

Here’s a list of common Australian tax terms and what they actually mean.

Assessable income

If you run a business, most income you receive is referred to as assessable income, sometimes known as total income. This means it is income which will be subject to income tax after deductions are applied. If you are an employee, assessable income will generally include wages, salaries, bonuses and tips. Note that there are certain types of income which are non-assessable, and guidance can be sought from your tax adviser.

Australian Business Number (ABN)

An Australian Business Number (ABN) is a unique 11-digit number used to identify your business when ordering and invoicing, and also for the purpose of paying tax in Australia. ABNs are also used to claim GST credits, claim energy grants credits, and even to purchase an Australian domain name. ABNs are a requirement for businesses to avoid their customers from withholding tax from payments.

Business Activity Statement (BAS)

Businesses registered for goods and services tax (GST) are required to lodge a business activity statement (BAS). There are different lodgment cycles ranging from monthly to quarterly to annually, depending on the size of your business. Your BAS will help you report and pay GST, PAYG instalments, PAYG withholding tax, as well as other taxes.

Capital Gains Tax (GCT)

Australians are required to pay capital gains tax (CGT) when they make a profit from the sale of an asset, such as property or shares. Capital gains are reported on your tax return and form part of your taxable income. Capital losses are also reported on your tax return however can only be used to offset capital gains rather than other income.

Cash flow

This refers to the balance of money coming into and going out of your business, and is usually summarised in a cash flow statement, which reports where money is coming from and going to. While profitability is important for a business, cash flow represents the day-to-day reality.

Director identification number

A director identification number, also known as a director ID, refers to the unique number identifier which is required by all current and prospective directors of a company in Australia. This number does not change throughout the director’s life and will need to be provided when they are appointed a director of a company.

Fringe benefits tax (FBT)

Fringe benefits tax (FBT) is a tax that employers pay on any benefits given to an employee that goes above their salary or wages. This can include being provided with a work car, access to a discounted loan, paying school fees, or salary sacrifice arrangements.

Goods and services tax (GST)

GST is a broad-based tax in Australia of 10 per cent on most goods and services. GST should be reported on your BAS. A business is required to register for GST once its expected turnover exceeds $75,000.

Income statement

It used to be called a ‘group certificate’ but now it’s referred to as an income statement. Your income statement is a summary that you receive from the Australian Taxation Office (ATO) via myGov that includes all your pay, tax, and superannuation information from the previous financial year, and is used to complete your annual tax return. If you are using a tax agent, they will be able to access this information for you.

Invoice

An invoice is a record of purchase provided to customers by a business when a customer pays for goods and services. It includes the type of product or service, the quantity and the price, as well as GST.

Pay As You Go (PAYG) withholding

Each time you’re paid by your employer they are required to keep a certain amount of tax from each payment and to pass this on to the ATO. When you lodge your tax return for the year, the ATO will assess the amount of tax you have paid compared to the amount you should have paid, excluding deductions, often resulting in a tax refund.

Payroll tax

Payroll tax is a tax calculated on wages paid by employers once the total amount exceeds the threshold of the particular state or territory. Some remuneration is exempt from payroll tax, including primary and secondary caregivers leave, Commonwealth paid parental leave, contributions to redundancy benefit schemes, and early retirement payments.

Tax deductible

Employees are allowed to claim deductions for any expenses that are directly related to their job. Eligible deductions vary between professions, and it is worth getting the assistance of an experienced tax consultant to make sure you are taking advantage of all the deductions you are eligible for.

Tax File Number (TFN)

Your Tax File Number (TFN) is your unique personal reference number for Australian taxes and superannuation, and it is essential for filing your annual tax return.

Tax return

This is a form that most individuals in Australia need to fill out each year that tells the ATO how much money you have earned in the year, and the deductions you are claiming.

Unfranked dividends

Shares can be fully franked, partly franked, or unfranked. Fully franked dividends mean that the dividends come with a tax credit which allows for company tax previously paid. This will often limit the amount of tax payable for the shareholder and sometimes lead to a tax refund. Unfranked dividends do not have any tax credit attached so will usually lead to additional tax being paid by the shareholder.

Speak to the tax experts

To maximise your tax return and to make sure you are compliant with Australian tax law, it’s important to not just understand Australian tax terms, but how they apply to your particular circumstance. That’s where an experienced and qualified tax agent comes into it.

LDB Group offers a team of experts in Australian tax requirements. Contact us today for advice in a language you understand.

Call (03) 9875 2900 or fill in the contact form below.