Question 1

What is the tax-free threshold in Australia?

Accepted Answer

The tax-free threshold is $18,200 for FY2024-25 and FY2025-26. Australian residents who earn below this amount pay no income tax. You can claim the tax-free threshold by ticking the box on your TFN declaration when starting a job — but only with one employer at a time.

Question 2

What is the Medicare Levy and who pays it?

Accepted Answer

The Medicare Levy is a 2% levy on your taxable income that funds Australia's public health system. Australian tax residents pay it. Low-income earners below approximately $26,000 (singles) may be fully or partially exempt. The phase-in range runs from roughly $26,000–$32,500 where only 10 cents per dollar applies.

Question 3

What is the Medicare Levy Surcharge (MLS)?

Accepted Answer

The MLS is an extra 1%–1.5% on top of the standard 2% Medicare Levy. For FY2025–26, it applies to Australian residents earning over $101,000 (single) or $202,000 (family) who do NOT hold private hospital cover. Taking out suitable private health insurance often saves more than the surcharge costs.

Question 4

What is the Low Income Tax Offset (LITO)?

Accepted Answer

LITO is a tax offset (not a deduction) available to Australian residents. The maximum is $700 for incomes up to $37,500. It phases out at 5 cents per dollar from $37,500 to $45,000, then at 1.5 cents per dollar from $45,000 to $66,667. Above $66,667 it is zero. It directly reduces the tax you owe.

Question 5

What is the difference between effective and marginal tax rate?

Accepted Answer

Your marginal rate is the rate applied to your last dollar of income — for example, 30% if you earn $120,000 under the Stage 3 tax cuts. Your effective rate is your total tax divided by your gross income, which is always lower because earlier income is taxed at lower rates. For $120,000 the effective rate is around 20%. The effective rate tells you what fraction of your income actually goes to tax.

Question 6

How does my HELP / HECS debt affect my tax?

Accepted Answer

If you have a HELP (Higher Education Loan Program) or HECS debt, repayments are made through the tax system when you lodge your tax return. For FY2025–26, repayments start once your income exceeds $67,000 at 1%, and increase progressively to 10% for the highest incomes. Tick the HELP box on your TFN declaration so your employer withholds the correct extra amount throughout the year.

Question 7

What is the difference between an Australian tax resident and a foreign resident?

Accepted Answer

Tax residency is separate from visa status. Residents get the tax-free threshold, LITO, and lower bracket rates. Foreign residents are taxed at a flat 30% up to $135,000 and 37%–45% above, with no tax-free threshold or LITO. Working holiday makers (visa 417/462) pay 15% up to $45,000. The ATO has residency tests — if unsure, seek professional advice.

Question 8

What is PAYG withholding?

Accepted Answer

PAYG (Pay As You Go) withholding is the system where your employer deducts estimated tax from each pay and sends it to the ATO on your behalf. At tax time, if too much was withheld you get a refund — if too little, you'll have a tax bill. The amount withheld depends on your earnings, residency, whether you claimed the tax-free threshold, and any HELP debt.

Question 9

What is a TFN declaration and why does it matter?

Accepted Answer

A Tax File Number (TFN) declaration is the form you complete when starting a new job. It tells your employer your residency status, whether you're claiming the tax-free threshold, and if you have a HELP debt. If you don't lodge one within 28 days, your employer must withhold tax at the highest rate (currently 47%) regardless of your actual income.

Question 10

Should I claim the tax-free threshold with my employer?

Accepted Answer

Claim the tax-free threshold with only ONE employer — typically your main or highest-paying job. If you claim it with multiple employers simultaneously, not enough tax is withheld from the second or third job and you'll owe money at tax time. If you have multiple jobs, claim it only with the one that pays the most.

Question 11

What is the difference between base salary and total package (CTC)?

Accepted Answer

Base salary is what you earn before super. Your employer adds 12% SGC on top as super contributions. A total package (also called CTC — cost to company) already includes the 12% super inside the figure. So a $100,000 package = ~$89,286 base salary + ~$10,714 super. Tax is calculated and withheld only on your base salary, not the super portion.

Question 12

Can I request a PAYG variation to have more or less withheld?

Accepted Answer

Yes. If you expect a large deduction claim (e.g. rental property losses, significant work expenses), you can apply to the ATO for a PAYG withholding variation using the online form at ato.gov.au. This reduces the amount withheld each pay so you're not waiting until tax time for your refund. The variation must be renewed each financial year.

Question 13

What happens if my employer withholds too much or too little tax?

Accepted Answer

If too much is withheld you'll receive a tax refund when you lodge your tax return. If too little is withheld, you'll have a tax debt. Both situations are resolved when you lodge your return — the ATO calculates your actual liability and either refunds the excess or asks you to pay the shortfall. In some cases, a shortfall may attract a general interest charge if payment is late.

Question 14

What work-related expenses can I claim as a tax deduction?

Accepted Answer

You can generally claim any expense you incurred to earn your income — as long as it's directly related to your work (not private), you weren't reimbursed, and you have records. Common claims include: car travel (cents-per-kilometre or logbook method), uniforms and protective clothing, tools and equipment, home office costs, self-education expenses related to your current job, and union fees.

Question 15

Do I need receipts for all my deductions?

Accepted Answer

You need written evidence (receipts, invoices, bank statements) for most claims. The one exception: you can claim up to $300 in total work-related expenses without receipts — but you must still be able to show you genuinely incurred the costs if asked. Note: the $300 limit applies to the total basket of expense claims, not $300 per item. Laundry claims up to $150 do not require receipts.

Question 16

How long do I need to keep my tax records?

Accepted Answer

The ATO requires you to keep records for five years from the date you lodge your return (or five years from the due date, whichever is later). This applies to receipts, invoices, bank statements, and logbooks. The ATO can audit returns within this window. Keep digital copies — photos of receipts saved in the myDeductions app are accepted.

Question 17

Can I claim working from home expenses?

Accepted Answer

Yes. From 1 July 2022 the ATO replaced the shortcut method with the revised fixed rate method: 67 cents per hour worked from home, covering electricity, internet, phone, and stationery. You need a record of actual hours worked from home (timesheets, calendar diary, or work systems log). You can still claim the actual cost method instead, which requires full receipts for each expense.

Question 18

Can I claim my mobile phone and internet?

Accepted Answer

Yes, but only the work-related portion. If you use your phone 40% for work, you can claim 40% of the bill. You need to work out the percentage using a 4-week representative diary. If your total claim for phone and internet is under $50, the ATO allows you to claim without keeping a full diary — just a reasonable estimate backed by brief notes.

Question 19

Can I claim tools and equipment I bought for work?

Accepted Answer

Yes. Items costing $300 or less can be claimed in full immediately. For items over $300 (e.g. a laptop for $1,500), you must depreciate the cost over the effective life determined by the ATO — unless you're a small business and can apply the instant asset write-off. Always reduce the claim to the work-related percentage if the item is also used privately.

Question 20

What are ATO small business benchmarks?

Accepted Answer

ATO small business benchmarks are financial ratios published by the Australian Taxation Office based on data from thousands of businesses in each industry. They show the typical range for key figures — such as cost of sales, labour costs, rent, and gross profit margin — as a percentage of turnover. The ATO uses these benchmarks to identify businesses whose figures look unusual compared to similar businesses, which may trigger a review or audit.

Question 21

How does the ATO use benchmarks to audit businesses?

Accepted Answer

The ATO compares a business's reported income and expenses against the benchmark ranges for its industry. If a business's ratios fall significantly outside the expected range — for example, unusually low gross profit margins or very high cost of sales — the ATO may flag it for a review, audit, or a letter asking for an explanation. Being outside the range doesn't automatically mean wrongdoing, but the business needs to be able to explain the variance with supporting records.

Question 22

What does it mean if my client is outside the benchmark range?

Accepted Answer

It means one or more of their financial ratios (e.g. cost of sales as a % of turnover) sits above or below the typical range for their industry. This could be due to legitimate business reasons — a new business still building turnover, a niche pricing model, or unusual one-off costs. However, it can also indicate under-reported income, over-claimed expenses, or poor record-keeping. You should review the figures carefully and ensure the client has documentation to support any variances.

Question 23

Which industries do ATO benchmarks cover?

Accepted Answer

The ATO publishes benchmarks for over 100 industries across retail, trades, hospitality, professional services, health, and more. Common examples include cafes and restaurants, hairdressers, plumbers, electricians, pharmacies, motor vehicle repairers, real estate agents, and building contractors. The full A–Z list is available at ato.gov.au. Our benchmark checker covers 80+ of the most commonly used industries.

Question 24

What financial figures do I need to run a benchmark check?

Accepted Answer

You need four key figures from the client's profit and loss statement: (1) Total annual turnover (gross sales/revenue), (2) Cost of sales — materials, stock, subcontractors directly tied to producing income, (3) Total labour costs — wages, salaries, super, and owner drawings, and (4) Rent and occupancy costs — rent, rates, and building-related expenses. You don't need all four — even entering just turnover and cost of sales will give you a useful gross profit margin comparison.

Question 25

What is the difference between cost of sales and expenses?

Accepted Answer

Cost of sales (also called cost of goods sold or COGS) refers to the direct costs of producing your income — for example, stock purchased for resale, raw materials, or subcontractor costs directly tied to jobs. General business expenses (overheads) such as advertising, accounting fees, insurance, and utilities are separate and not included in cost of sales. The ATO benchmark for cost of sales only covers the direct production costs, not total expenses.

Question 26

Can a business be outside the benchmark range for legitimate reasons?

Accepted Answer

Absolutely. There are many valid reasons a business may sit outside the benchmark range: a startup with high initial costs and lower turnover, a premium-priced business with lower cost of sales, a business in a high-rent location, seasonal businesses with uneven revenue, or a business that has recently changed its model. The key is having clear records and a documented explanation. The ATO does not automatically assume non-compliance — they look at the full picture.

Question 27

How often does the ATO update its benchmark data?

Accepted Answer

The ATO typically updates its small business benchmark data annually, using tax return data from the most recently processed financial year. The current published benchmarks are based on FY2022–23 data. Benchmark ranges can shift over time as industry conditions change — for example, hospitality benchmarks shifted noticeably after COVID-19. Always check the ATO website for the most current figures before relying on them for advice.

Question 28

Should I use benchmarks as part of my tax planning for clients?

Accepted Answer

Yes — benchmarks are a valuable proactive tool. Reviewing your client's ratios before lodgement lets you identify potential red flags early, correct any errors, and prepare explanations for any legitimate variances. It also helps you have informed conversations with clients about their business performance. Many tax agents run a benchmark check as a standard part of their annual review process, particularly for small business clients in industries the ATO actively monitors.

Question 29

What is the Superannuation Guarantee (SG) rate?

Accepted Answer

The Super Guarantee rate for FY2025-26 is 12% of your ordinary time earnings. This is the final rate after a series of staged increases from 9.5% (2021–22). Your employer is legally required to pay this on top of your salary (unless you are on a total package arrangement) into your nominated super fund.

Question 30

When can I access my superannuation?

Accepted Answer

You can generally access your super once you reach your preservation age AND retire permanently. Preservation age is 60 for everyone born after 30 June 1964. If you've reached 60 and are still working, you can start a transition to retirement income stream. You can also access super earlier in very limited circumstances — severe financial hardship, compassionate grounds, terminal illness, or permanent incapacity.

Question 31

How is superannuation taxed?

Accepted Answer

Employer contributions and salary-sacrificed contributions are taxed at a flat 15% inside your super fund (compared to your marginal income tax rate which could be up to 45%). Investment earnings in super are also taxed at 15%. Once you turn 60 and retire, withdrawals from a taxed super fund are completely tax-free. This makes super one of the most tax-effective long-term savings vehicles in Australia.

Question 32

What is salary sacrifice to super?

Accepted Answer

Salary sacrifice means asking your employer to redirect a portion of your pre-tax salary into your super fund instead of paying it to you as cash. Because these contributions go in at 15% tax rather than your marginal rate (e.g. 30% or 37%), you can significantly reduce your tax bill and grow your retirement savings. The total concessional (pre-tax) contributions cap is $30,000 per year for FY2025–26.

Question 33

What is the superannuation contribution cap?

Accepted Answer

There are two types of contribution caps. Concessional (pre-tax) contributions — including employer SG and salary sacrifice — are capped at $30,000 per year for FY2025–26. Non-concessional (after-tax) contributions are capped at $120,000 per year (or $360,000 over three years using the bring-forward rule). Exceeding these caps triggers extra tax. Unused concessional cap amounts can be carried forward for up to 5 years if your super balance is under $500,000.

Question 34

How much super should I have for retirement?

Accepted Answer

The ASFA Retirement Standard (as at 2024) estimates you need approximately $595,000 (single) or $690,000 (couple) at retirement age to fund a "comfortable" lifestyle — roughly $51,000/year for a single person. A "modest" lifestyle requires around $100,000. The Age Pension can supplement super for those with lower balances. Use the Retirement Planner tool to see projections based on your own situation.

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