Understanding the difference between taxable income, assessable income and exempt income is essential when preparing your Australian tax return.
Incorrectly reporting income can result in amended assessments, penalties or delays in processing.
Here’s what individuals need to know.
What Is Assessable Income?
Most income you earn is assessable income, meaning it must be declared in your tax return.
Common examples include:
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Salary and wages
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Bonuses, commissions and overtime
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Interest from bank accounts
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Dividends from shares
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Rental income
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Pensions
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Cash payments and tips
If you receive goods or services instead of money (for example, products received for promoting a business online), you must declare the market value as income.
Cash income must also be declared.
What Is Taxable Income?
Your taxable income is your assessable income minus allowable deductions.
Assessable income − allowable deductions = taxable income
Your taxable income determines how much tax you pay.
Deductions reduce your taxable income, which reduces the amount of tax payable.
What Is Exempt Income?
Exempt income is income you do not pay tax on. However, in some cases it still needs to be reported for other tax calculations.
Examples may include:
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Certain government pensions
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Some education payments
If your only income for the year is exempt income, you may not need to lodge a tax return.
What Is Non-Assessable Non-Exempt Income?
Non-assessable non-exempt income is not included in your tax return and you cannot claim deductions against it.
Examples can include:
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The tax-free component of some employment termination payments
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Super co-contributions
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Certain disaster relief payments
Why This Matters Before Tax Time
Many taxpayers are surprised to learn that:
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Side hustle income is taxable
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Online platform income must be declared
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Cash payments are reportable
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Investment income is automatically reported to the ATO
Reviewing your income categories early can prevent errors when lodging your return.
If you’re unsure whether income needs to be declared, it’s best to clarify before tax season.
Speak to our team for personalised advice here.
View the ATO guidance on taxable, assessable and exempt income
