Module 1
What is tax?
In the simplest terms, tax is an amount of money the government requires you to pay. For most working Australians, it comes straight out of income: your wages, salary, or the money you earn from a business or investments.
Three things set tax apart from any other bill:
- It’s compulsory. Tax is a mandatory charge. You can’t opt out, negotiate it away, or choose not to pay because you don’t use a particular service.
- It’s set by law. Parliament decides the rates, and the Australian Taxation Office (ATO) collects them.
- It isn’t a payment for something specific. Unlike a phone bill, you don’t get a direct product in return. Your tax goes into a shared pool that funds the whole country.
Who has to pay?
Anyone who earns income in Australia sits inside the tax system. Citizens, permanent residents and many visa holders are all taxed. What decides how you’re taxed is your residency for tax purposes, not your passport, and how much you earn. If you earn under the tax-free threshold, you may end up paying no income tax at all.
Key takeaway
- Tax is a compulsory charge set by law and collected by the ATO, mostly taken from the income you earn.
Module 2
Why we hand money to the government
Tax is how a country pays for the things we all rely on but couldn’t easily buy on our own. Every time you drive on a sealed road, see a GP under Medicare or send a child to a public school, taxpayer money is at work. Here are a few examples:
HealthMedicare, public hospitals and subsidised medicines
Social supportAge pensions, family payments, disability and unemployment support
EducationSchools, universities and training
InfrastructureRoads, rail, bridges and public transport
SafetyDefence, police, emergency services and courts
CommunityParks, libraries, environment programs and the arts
Tax as a fairness tool
A well-designed tax system does more than raise money. It also helps narrow the gap between high and low incomes. People who earn more contribute a larger share, and that money flows back into services and support that everyone can use. Economists call this reducing income disparity.
Key takeaway
- Tax funds shared services like health, education, roads and welfare.
- It’s also designed to reduce the income gap across the community.
Module 3
One system, many taxes
Australia doesn’t have one tax; it has many, collected by different levels of government. That layering is a big reason the system feels so complicated. Here are the ones you’re most likely to bump into:
Income taxOn wages, salary, business and investment income. Federal.
Medicare levyAn extra 2% on taxable income to help fund Medicare.
GST10% added to most goods and services you buy.
Capital gains taxOn profit when you sell assets like shares or an investment property.
Company taxPaid by businesses on their profits.
Stamp dutyA state tax, mostly felt when buying property or a car.
There are others too (land tax, payroll tax, fringe benefits tax), but for everyday Australians the big one is income tax. That’s where we’ll focus for the rest of this course.
Module 4
How income tax works
Australia uses a progressive system
A progressive tax system means the more you earn, the higher the rate of tax on your extra dollars. Your income is split into bands, called tax brackets, and each band is taxed at its own rate.
Here’s the important bit most people get wrong: moving into a higher bracket doesn’t mean all your income is taxed at the higher rate. Only the dollars inside that bracket are. The rate on your last dollar earned is your marginal rate.
Australian resident rates for the 2026–27 financial year (1 July 2026 – 30 June 2027). The Medicare levy of 2% is charged on top.
The tax-free threshold
The first $18,200 of an Australian resident’s income each year is tax-free. That’s why someone earning $15,000 from a casual job can often get all their withheld tax back at the end of the year.
Why progressive?
A progressive system is built on the idea of capacity to pay. Losing $2,000 to tax hurts far more on a $30,000 income than on a $300,000 one. By asking higher earners to pay a bigger share of each extra dollar, the system reduces income disparity, helps narrow the wealth gap over time, and funds the safety net that protects people on lower incomes.
How the tax is actually collected: PAYG
Most employees never write a cheque to the ATO, because their tax is collected through PAYG withholding, short for Pay As You Go.
It works like this: every time you’re paid, your employer estimates the tax you’ll owe for the year, withholds that portion from your pay, and sends it to the ATO on your behalf. The figure marked “tax” on your payslip is that withholding. You’re effectively paying your yearly tax in small instalments throughout the year rather than in one painful lump.
- When you start a new job, you fill out a TFN declaration. This tells your employer your tax file number and whether to apply the tax-free threshold.
- You should usually claim the tax-free threshold from one employer only. Claim it at two jobs and too little tax gets withheld, which can mean a bill at tax time.
Because PAYG withholding is just an estimate, it rarely matches your final tax exactly. Squaring that up is the whole point of the tax return in Module 6.
What are ordinary time earnings (OTE)?
You’ll see OTE pop up in payroll and super conversations. Ordinary time earnings are what you earn for your ordinary hours of work: your normal rostered or agreed hours.
OTE matters mostly because of superannuation. Your employer must pay super guarantee of 12% on top of your wages. Since 1 July 2026, that 12% is calculated on a slightly broader base called qualifying earnings, which is built on your OTE plus a few extra items. Under the new Payday Super rules, employers must now pay your super at the same time as your wages, rather than once a quarter.
Don’t mix them up
Tax is withheld from your pay. Super is paid by your employer on top of your pay into your super fund. Both appear on your payslip, but they’re separate things.
Key takeaways
- Australia taxes income in brackets; higher rates apply only to the dollars inside higher brackets.
- PAYG withholding means your employer takes tax out of each pay and sends it to the ATO.
- OTE is pay for your ordinary hours and is the backbone of your 12% super.
Module 5
Three worked examples
Let’s put the brackets to work. Each example uses the 2026–27 resident rates and a different situation, so you can see how tax changes with income, offsets and deductions.
Mia, part-time retail assistant
Taxable income $40,000
Mia works three days a week. Her income sits in the 15% bracket, and because it’s on the lower side she also qualifies for the low income tax offset (LITO), a reduction of up to $700 that phases out as income rises.
Understanding the LITO
The low income tax offset is a reduction of up to $700 off the tax bill of lower-income earners. You don’t need to apply for it: the ATO works it out automatically when you lodge your tax return. The full $700 goes to people with lower incomes, then it shrinks as income rises until it disappears.
| Taxable income | LITO you receive |
|---|
| Up to $37,500 | $700 |
| $37,501 – $45,000 | $700 minus 5c for each $1 over $37,500 |
| $45,001 – $66,667 | $325 minus 1.5c for each $1 over $45,000 |
| Over $66,667 | Nil |
The LITO can bring your tax down to zero, but it can’t go below zero. If you owe no tax, any unused offset isn’t paid to you as cash. Note that it reduces income tax only; the Medicare levy is still charged on top.
Mia earns $40,000, which is $2,500 over $37,500. So her LITO is $700 minus (5c × $2,500), which is $700 minus $125 = $575.
| First $18,200 | $0 |
| $18,201 to $40,000: $21,800 × 15% | $3,270 |
| Less LITO: $700 − (5% × $2,500 over $37,500) | − $575 |
| Medicare levy: $40,000 × 2% | $800 |
| Total tax for the year | $3,495 |
Tax-free portionTaxed at 15%
The lesson: an offset reduces your tax bill directly, dollar for dollar. That’s different to a deduction, which reduces the income you’re taxed on.
Daniel, full-time nurse who just got a raise
Taxable income $95,000, then $100,000
Daniel earns $95,000. He’s been offered a $5,000 pay rise but a friend warned him it would “push him into a higher bracket” and he’d lose money. Let’s check.
| First $18,200 | $0 |
| $18,201 to $45,000: $26,800 × 15% | $4,020 |
| $45,001 to $95,000: $50,000 × 30% | $15,000 |
| Medicare levy: $95,000 × 2% | $1,900 |
| Total tax at $95,000 | $20,920 |
Tax-free15%30%
Now add the $5,000 raise. Those extra dollars all fall in the 30% bracket, so the extra tax is $5,000 × 30% = $1,500, plus $100 Medicare levy. Daniel keeps $3,400 of his $5,000 raise. Nothing he already earned is taxed any differently.
Effective rate at $95k22.0%
Extra tax on the raise$1,600
Raise he keeps$3,400
The lesson: a pay rise can never leave you with less money under Australia’s bracket system. The myth comes from confusing the marginal rate with the rate on your whole income.
Priya, marketing manager who claims deductions
Salary $150,000, deductions $3,000
Priya earns $150,000 and spent $3,000 on work-related costs she has receipts for: a professional membership, a short course and some home office expenses. Deductions come off her income before tax is calculated.
| Salary | $150,000 |
| Less work-related deductions | − $3,000 |
| Taxable income | $147,000 |
| Tax on the first $135,000 (from the rates table) | $31,020 |
| $135,001 to $147,000: $12,000 × 37% | $4,440 |
| Medicare levy: $147,000 × 2% | $2,940 |
| Total tax for the year | $38,400 |
The lesson: a deduction saves you tax at your marginal rate, not the full amount. Priya’s $3,000 deduction saved her $3,000 × 39% = $1,170. Spending $3,000 to “get a tax deduction” still leaves you $1,830 out of pocket. At this income, Priya should also hold private hospital cover, or she may pay the separate Medicare levy surcharge.
Module 6
What is a tax return, then?
Australia’s financial year
Australia doesn’t run its tax year from January to December. The financial year runs from 1 July to 30 June. So the “2027 tax return” covers income earned from 1 July 2026 to 30 June 2027.
1 JulyThe financial year begins
30 JuneThe financial year ends
July – OctTax time: lodge your return
31 OctoberDeadline if lodging yourself
What a tax return actually does
Remember that PAYG withholding is just your employer’s estimate. A tax return is your end-of-year report to the ATO that sets the record straight. In it, you declare:
- all the income you earned (wages, interest, dividends, rent, side hustle income and so on)
- any deductions you’re entitled to claim
- any offsets and details like private health insurance
The ATO then calculates the tax you should have paid and compares it with the tax that was actually withheld. If too much was withheld, you get a refund. If too little, you get a bill. You’ll receive a notice of assessment that shows the final result.
Key dates
- Lodging yourself: you have until 31 October to lodge your return for the financial year that just ended.
- Using a registered tax agent: you usually get extra time, often into the following year, as long as you’re on the agent’s books before 31 October.
- Lodging too early: waiting until late July is wise, when your employer, bank and health fund information shows as “tax ready” in the ATO system.
Sam’s tax return, start to finish
Full-time admin officer
Sam’s income statement shows a salary of $68,000, with $12,300 of PAYG tax withheld across the year. Sam also earned $250 interest on savings and has receipts for $1,400 of work-related expenses.
| Salary and wages | $68,000 |
| Bank interest | $250 |
| Less work-related deductions | − $1,400 |
| Taxable income | $66,850 |
| Income tax: $4,020 + ($21,850 × 30%) | $10,575 |
| Medicare levy: $66,850 × 2% | $1,337 |
| Tax Sam should pay for the year | $11,912 |
| Less PAYG already withheld by employer | − $12,300 |
| Refund to Sam | $388 |
If Sam had a second job and claimed the tax-free threshold at both, too little would have been withheld and the last line could easily have turned into a bill instead. That’s why it pays to get your TFN declarations right.
Module 7
Lodging your return, step by step
Most Australians can lodge for free online using myTax, the ATO’s online tax return, which you reach through myGov. There are three stages: set up myGov, link it to the ATO, then complete and lodge.
Stage 1: Create a myGov account
- Go to my.gov.auSelect Create account. Only ever use the official site; myGov will never ask you to click a link in a text message to sign in.
- Verify your emailEnter your email address and type in the code that myGov emails to you.
- Create a strong passwordPick something unique that you don’t use anywhere else.
- Set up your sign-in securityAdd your mobile number to receive a code each time you sign in, or use the myGov app or a passkey. You can also use your Digital ID (such as myID) to sign in.
- Finish and sign inYour account is ready. Write down where you stored your sign-in details.
Stage 2: Link myGov to the ATO
- Choose “Link a service”From your myGov home screen, go to services and select Australian Taxation Office.
- Prove who you areYou’ll need your tax file number plus answers to a couple of questions only you’d know, such as your bank account details from your last return, a payslip or income statement, or details from your super account. Alternatively, verify through your Digital ID.
- Confirm the linkOnce verified, the ATO appears under your linked services. You only have to do this once.
Stage 3: Complete and lodge in myTax
- Open your tax returnIn myGov, select ATO, then Tax, then Lodgments and Income tax. Choose Lodge return and pick the financial year you’re lodging for.
- Check your personal detailsConfirm your name, address, phone and, most importantly, the bank account your refund will be paid into.
- Answer the “prepare return” questionsmyTax asks what applies to you this year (for example, did you earn interest, have rental property or receive a government payment). Your answers decide which sections appear.
- Review the pre-filled informationMuch of your return will already be filled in from your employer, bank, health fund and government agencies. Check every number against your own records. Pre-fill is a starting point, not a guarantee.
- Add anything missingFill in income that isn’t pre-filled, like side hustle earnings or cash jobs, then work through deductions and offsets.
- Review your estimatemyTax shows an estimate of your refund or amount owing. If it looks surprising, go back and recheck before moving on.
- Read the declaration and lodgeConfirm the information is true and correct, then select Lodge. You’ll get a receipt number. Your notice of assessment usually arrives in your myGov inbox within about two weeks.
The main sections of your return, explained
Personal details
Your contact information, residency status and the bank account for any refund. Keep these current so nothing goes astray.
Income
Everything you earned: salary and wages from your income statement, allowances, tips, bank interest, dividends, government payments, rental income, capital gains, foreign income and business or side hustle income. If in doubt, declare it; the ATO receives data from banks, employers and platforms.
Deductions
Costs you paid that relate directly to earning your income. Common ones include work-related car and travel expenses, compulsory uniforms, self-education linked to your current job, tools and equipment, working-from-home costs, union fees, donations to registered charities, and the cost of managing your tax affairs (like a tax agent’s fee).
Offsets
Reductions to your tax bill itself, rather than your income. Some, like the low income tax offset, are applied automatically. Others, such as certain senior or zone offsets, depend on your circumstances.
Medicare and private health
Where you confirm the Medicare levy, any exemption, and your private health insurance details. This affects the Medicare levy surcharge and the private health insurance rebate.
Income tests
Extra details, like spouse income or dependants, that some benefits and offsets rely on.
The three golden rules for deductions
Before you claim anything, it must pass all three of the ATO’s tests:
You paid for itYou spent the money yourself and weren’t reimbursed by your employer.
It’s for workIt relates directly to earning your income. Private costs don’t count.
You can prove itYou have a record, such as a receipt or invoice. Keep records for five years.
If a cost is partly for work and partly personal (like a phone or laptop), you can only claim the work portion.
Need a hand?
If your affairs are simple and your income is modest, the ATO’s free Tax Help program has trained volunteers who can help you lodge. If you have rental properties, shares, a business or anything unusual, a registered tax agent is often worth the fee, which is itself tax deductible next year.
Key takeaways
- Australia’s financial year runs 1 July to 30 June; lodge by 31 October or use a tax agent for more time.
- A tax return compares the tax you should pay with what was withheld, resulting in a refund or a bill.
- Lodge free through myGov and myTax, check every pre-filled figure, and only claim deductions you can prove.
Wrap-up
Check your understanding
1. If your income rises from $44,000 to $46,000, is all of it now taxed at 30%?
No. Only the $1,000 above $45,000 is taxed at 30%. Everything below stays in the lower brackets.
2. What does PAYG withholding mean?
Your employer withholds an estimate of your tax from every pay and sends it to the ATO for you.
3. What’s the difference between a deduction and an offset?
A deduction reduces the income you’re taxed on. An offset reduces the tax bill itself, dollar for dollar.
4. When does Australia’s financial year end, and when is the self-lodgement deadline?
It ends on 30 June. If you lodge yourself, your return is due by 31 October.
5. Why do people sometimes get a tax bill even though tax was taken from every pay?
Usually because too little was withheld, often from claiming the tax-free threshold at two jobs, or from earning income with no tax withheld, like interest or side hustle income.
Glossary
- ATO
- The Australian Taxation Office, the government agency that collects tax.
- Taxable income
- Your total assessable income minus allowable deductions. Tax is calculated on this figure.
- Marginal tax rate
- The rate of tax on your next dollar of income.
- Effective tax rate
- Your total tax divided by your total income: the average rate you actually pay.
- Income statement
- Your employer’s end-of-year summary of your pay and tax withheld, available in myGov.
- Notice of assessment
- The ATO’s official result after you lodge, showing your refund or amount owing.
- Qualifying earnings
- From 1 July 2026, the pay figure your 12% super is calculated on. It’s based on your OTE plus some extra items.
