Key Tax Terms

Understanding key tax terms is crucial for managing your taxes and making informed decisions during the filing process. Below are some important terms you should know:

PAYG Withholding

This is a system where your employer deducts tax from your wages and sends it directly to the ATO. It’s a way to pay your tax gradually throughout the year.

Taxable Income

Taxable income refers to the portion of your income on which tax is calculated, after deducting any expenses and offsets. This is the amount the ATO will apply the tax rate to.

Assessable Income

Assessable income is the total income you earn before any deductions. This includes your salary, wages, and any income from investments.

Tax Offsets

Tax offsets are reductions in the amount of tax you owe. For example, the Low and Middle Income Tax Offset (LMITO) can reduce the tax payable based on your income.

Deduction

A deduction is an expense you can subtract from your assessable income to reduce your taxable income. Common deductions include work-related expenses like travel or home office costs.

Notice of Assessment (NOA)

This is a statement issued by the ATO that summarises the outcome of your tax return. It will show if you owe tax or are entitled to a refund.

These terms help you better understand how your taxes are calculated and the options available for reducing your tax liability. Understanding these concepts ensures you’re prepared when filing your return.

For more detailed guidance on deductions and offsets, visit our Work-Related Deductions Guide

FAQs

Q: What’s the difference between assessable income and taxable income?
Assessable income is your total earnings before any deductions, while taxable income is the amount left after allowable deductions are subtracted.

Q: How do tax offsets differ from deductions?
Tax offsets directly reduce the amount of tax you owe, while deductions reduce the amount of income that is subject to tax before the tax is applied.