Income of any kind is subject to income tax, provided that you earn more than the tax-free threshold hold amount. Assessable income is comprised of any amount that is:
- Ordinary income, referring to the income that is derived directly or indirectly from all sources, whether in or out of Australia, during a financial year. Some examples of ordinary income include your salary or income received for rendering personal services (see section 6.5 of the Income Tax Assessment Act 1997 (Cth)); and
- Statutory income, referring to all amounts that are not ordinary income but are included in your assessable income by way of a specific rule in tax law. Examples of statutory income include capital gains, dividends and franking credits, any allowances and redundancy payments (see section 10.5 of the Income Tax Assessment Act 1997 (Cth)).
The form of income that is not capable of being taxed is known as ‘exempt’ income. Examples of exempt income include, but are not limited to, the following:
- Certain Australian Government pensions (e.g. certain payments received under the Veterans’ Entitlements Act 1986 (Cth) and Military Rehabilitation and Compensation Act 2004 (Cth);
- Certain overseas pay and allowances for members of the Australian Defence Force (ADF); and
- Certain scholarships and business grants.
Your assessable income is not the amount upon which your tax is calculated. The taxable amount, known as your ‘taxable income’ is the amount that is your assessable income less allowable tax deductions. Deductions, or legitimate expense claims, generally can be claimed if money was spent in order to earn income. It is important that the expense is incurred to earn the income, it is not of a private or domestic nature and it is not an outgoing of capital or of a capital nature related to a capital asset. Some examples include, but are not limited to, the following:
- business vehicle and travel expenses,
- tools and equipment; and