Lodging a tax return can be daunting for students. For parents, knowing the requirements can be a challenge. We have formulated seven tax tips for students for the year ending 30 June 2012. The list is not exhaustive and you should always speak to a CPA registered tax agent about your specific circumstances. To hear more, listen to our tax tips podcast here.
1. Determine whether you need to lodge an income tax return
You may or may not need to lodge a return this year. To determine whether you do, identify all sources of income derived during the year that is assessable for income tax purposes.
Such amounts include:
• income derived from work as an employee or a contractor, including any tips or gratuities received
• investment income derived, such as any bank interest or dividends on shares received
• certain government payments received via Centrelink, such as Austudy, ABSTUDY and youth allowance
• some non-government scholarships, grants and awards
• distribution from a family trust or partnership
Broadly, once you have determined that your total assessable income is in excess of the tax-free threshold of A$6000 (less any eligible tax offsets you may be eligible for) for the year ended 30 June 2012 consider lodging an income tax return with the Australian Taxation Office.
Where your taxable income is less than the tax-free threshold it will be necessary to lodge an income tax return to obtain any tax refund for tax retained from assessable amounts.
BONUS For the year ended 30 June 2013 the tax-free threshold more than triples to A$18,200 which will reduce the number of students required to lodge income tax returns in the future. If you have already submitted a tax file number declaration to claim for the old tax-free threshold of A$6000, you do not have to do anything as your employer automatically adjusts to the new tax-free threshold of A$18,200 from 1 July 2012.
2. Consider the special rules for those under 18
Certain types of income earned by those Australian residents under the age of 18 are taxed at higher rates than those that ordinarily apply to income derived by adult taxpayers aged 18 or over.
Income derived by minors that is taxed at a high rate can include:
• income received as a beneficiary from a trust
• interest, dividends, rent and royalties
Such income will be taxed at a rate of 66 per cent to the extent that the income is greater than A$416 and less than A$1307, and at a rate of 45 per cent on such income to the extent it exceeds A$1307. From the year ended 30 June 2012 such minors will also not be able to typically claim the low income tax offset to reduce their tax liability on such income.
Ordinary marginal tax rates will apply to other income derived by a minor aged under 18. Such excepted income includes:
• employment or business income
• taxable government pensions or payments from Centrelink
• income from a deceased estate
• income from property transferred to a minor as a result of a person’s death or a family breakdown
• net capital gains on a disposal of investments
3. Know your deductions
You are entitled to claim deductions for certain expenses that are directly related to the income you have received. In particular, you can claim work-related deductions if you have the necessary receipts or credit card statements. Typical work-related expenses that are allowable include uniforms, protective clothing, employment-related telephone, mobile and internet costs, subscriptions and union fees.
However, study expenses that are not related to employment are not deductible, this includes assessable government training payments.
You should consult your CPA registered tax agent to identify all eligible deductions.
4. Claim the right tax offsets
If you receive an assessable government training payment, a tax offset is available to ensure you do not have to pay tax on the payment.
If you receive Austudy, ABSTUDY, Newstart Allowance or Youth Allowance you are eligible for the beneficiary offset.
The beneficiary offset will not reduce the tax payable on a person’s other income, such as salary and wages or on their investment income. In certain circumstances the low income tax offset will be available to reduce tax payable on such income provided your taxable income exceeds the tax-free threshold for the particular year.
Students should consult their CPA registered tax agent to identify any other tax offsets available.
5. Identify eligible self-education expenses
While you cannot claim self-education expenses for study unrelated to your current job, if your study is directly related to maintaining or improving your current occupation’s skills, or could increase your income from your current employment, you can claim self-education expenses.
Typical self-education expenses include:
• course fees
• student union fees
• the depreciation of assets such as computers and printers
Note: If you’re studying your first university course you will not be eligible for self-education expenses unless it is related to your employment.
6. Understand HELP debts
Higher Education Loan Program (HELP) debt repayments are not deductible.
If you have a HELP debt, repayments only commence once your salary exceeds A$47,196 (this figure is for year ending June 30 2012 and is indexed annually). The specific amount required to be repaid will depend on your total taxable income.
Assuming you have filled out the necessary paperwork in the form of a tax file number declaration form so your employer can withhold the necessary PAYG tax from your salary, the Australian Taxation Office will automatically calculate your HELP repayment once your income exceeds A$47,196, even if you are continuing to study. If you don’t do this, you may find yourself facing a hefty tax bill.
If your income varies significantly over a year and you do not expect to exceed the minimum repayment threshold you can ask your employer to stop deducting amounts to pay your HELP debt, and amounts already retained may be refundable.
7. Know if you’re a resident for tax purposes
If you’re an overseas student studying at an Australian institute of higher education for a period of six months or more you will be regarded as an Australian resident for income tax purposes. Accordingly, you will pay the same rate of tax as other resident taxpayers.
If you are an Australian resident you will be required to disclose all your income earned for the year, including income derived overseas, and will be entitled to claim eligible tax deductions and offsets.
However, access to the tax-free threshold is only fully available if you are an Australian resident throughout the entire tax year. You are only entitled to a pro rata tax-free threshold if you are only an Australian resident for part of the year.