Filing an accurate tax return is essential to comply with Australian tax laws and avoid penalties. One of the most important aspects of completing your tax return is correctly declaring all income earned during the financial year. But what types of income are taxable and need to be reported? This comprehensive guide explains the different kinds of income you must declare on your tax return, helping you stay compliant and maximise your tax benefits.
Why Declaring All Income is Important
The Australian Taxation Office (ATO) requires taxpayers to declare all income to assess the correct amount of tax payable. Failure to declare income can lead to penalties, interest charges, audits, or legal action. Being transparent and thorough ensures your tax affairs are in order and helps you avoid complications.
Types of Income You Must Declare
The ATO categorises income into various types. Below are common income sources you need to include:
1. Employment Income
This includes wages, salaries, bonuses, commissions, allowances, and tips received from your employer. Your employer will typically provide a Payment Summary or income statement which summarises these amounts.
2. Business and Freelance Income
If you operate a business, work as a freelancer, or are a sole trader, you must declare all income earned from these activities. This includes payments from clients, invoices issued, and any other business-related earnings.
3. Investment Income
Income from investments includes:
- Interest earned from bank accounts and term deposits
- Dividends from shares or managed funds
- Distributions from trusts or partnerships
- Capital gains from the sale of assets like property, shares, or collectibles
4. Government Payments and Allowances
Many government payments are taxable and must be declared, such as:
- JobSeeker payments
- Parenting payments
- Youth Allowance
- Family Tax Benefit (Part B)
- Paid parental leave
Some government payments may be non-taxable; check your specific payment details.
5. Foreign Income
Australian residents for tax purposes must declare all foreign income, including wages, pensions, investments, and rental income earned overseas. Foreign income must be reported in Australian dollars, and foreign tax credits may be available to avoid double taxation.
6. Rental Income
If you rent out property, declare all rental income received. You can also claim related expenses to reduce taxable income from this source.
7. Other Income
Other types of income you may need to declare include:
- Alimony or maintenance payments received
- Amounts received from royalties or copyright
- Scholarships, grants, or prizes (depending on conditions)
- Income from trusts or estates
- Cancelled debts or forgiven loans (may be taxable)
- Business income from hobby activities if conducted as a business
What Income Is Not Taxable?
Some income is exempt from tax and does not need to be declared, such as:
- Certain government pensions and allowances
- Gifts and inheritances
- Child support payments received
- Compensation payments for personal injury
- Some scholarships or educational allowances (subject to conditions)
Always verify with the ATO or a tax professional whether specific income is exempt.
Tips for Accurate Income Declaration
- Use ATO pre-fill services available via your myGov account to obtain reported income details.
- Keep all payment summaries, bank statements, and receipts throughout the year.
- Declare income even if you did not receive a payment summary.
- Convert foreign income to Australian dollars using the appropriate exchange rates.
- Consult a tax professional if you have multiple income streams or complex situations.
Consequences of Failing to Declare Income
Failure to declare all income can lead to:
- Penalties and interest charges on unpaid tax
- ATO audits and investigations
- Legal action and possible prosecution in severe cases
- Increased tax debt and financial stress
It is always best to be thorough and honest in your tax return.
Conclusion
Knowing what income to declare is fundamental to lodging an accurate and compliant tax return. From employment wages to investment earnings, rental income, and foreign income, you must report all taxable income to the ATO. Staying organised, keeping good records, and using available ATO tools will help you meet your obligations and avoid penalties. When in doubt, seek advice from registered tax professionals to ensure your tax return reflects your true financial position.
