Tax Return Guide for Individuals: How to Prepare and Lodge in Australia

Taxable income is assessable income less allowable deductions. The resident tax rates are applied to that taxable income, then tax offsets reduce the tax payable, and the Medicare levy is added on top. Tax already withheld through the year, mainly through employer PAYG withholding, is subtracted last.

If the withheld amount exceeds the final liability, the difference is refunded; if it is less, the balance is payable. Understanding this order explains why a deduction lowers taxable income rather than reducing the final tax dollar for dollar, and why an offset is more valuable per dollar than a deduction.

The financial year ends on 30 June. Online lodgment opens from 1 July, but much of the pre-fill data from employers, banks and health funds is not finalised until late July, so lodging very early raises the chance of needing to amend later.

A person lodging their own return must lodge by 31 October. Registering with a registered tax agent before 31 October generally moves the deadline into the following year, as late as 15 May, under the ATO agent lodgment program.

Where a return produces a bill, the notice of assessment shows the due date for payment.

A return brings together income from all sources, not just salary and wages. Common types include employment income, bank interest, dividends including attached franking credits, distributions from managed funds and ETFs, rental income, capital gains from selling assets such as shares or property, and foreign income.

Sole trader business income is reported through the individual return rather than a separate entity return. Much of the return is pre-filled with data from employers and financial institutions, but the person lodging is responsible for checking it is complete, because pre-fill data can be late or missing items.

A deduction reduces taxable income. The ATO applies three tests for a work-related deduction to be allowed: the money was spent by the person and not reimbursed by an employer, the expense has a direct connection to earning their income, and there is a record to prove it.

Where an expense has both private and work-related use, only the work-related portion can be claimed.

If total work-related claims are $300 or less, a record of how the amount was worked out is needed but receipts are not required; above $300, written evidence is required for the whole claim, not just the portion over $300.

Records are generally kept for five years from the date of lodgment.

Sole traders and partners who travel away from home for 6 or more consecutive nights for business must keep a travel diary. The Individual Travel Diary tool captures the date, place, nature of the activity, and times the ATO requires.

The Individual Deduction Tracker tool helps log work-related expenses, apply a work-related portion to each item, and see an estimated claimable total — ready to export for record-keeping.

Fines, private expenses and anything reimbursed by an employer cannot be claimed.

The ATO fixed-rate method for working from home expenses requires a record of actual hours worked from home across the full income year. The Individual WFH Hours Diary tool supports that record-keeping requirement.

Working from home

A portion of running costs such as electricity and internet, calculated under an ATO-accepted method. For example, a person who works from home three days a week keeps a diary of hours to support a fixed-rate method claim.

Work-related phone and internet

The work-use percentage of the bill, estimated from a representative four-week period and applied to the full-year cost.

Tools and equipment

Items used for work, with items costing over $300 generally deducted over their effective life rather than all at once in the year of purchase.

Occupation-specific or protective clothing and laundry

Protective or occupation-specific clothing with a direct connection to the work. A laundry diary or reasonable estimate is needed; the $150 laundry limit sits inside the overall $300 no-receipt threshold.

Self-education

Course fees, textbooks and related travel where the course has a sufficient and direct connection to the person's current employment.

Donations

Gifts of $2 or more to a deductible gift recipient. The organisation's DGR status can be confirmed via the ABN Lookup tool.

Cost of managing tax affairs

Fees paid to a registered tax agent for preparing and lodging the return are deductible in the income year in which they are paid.

A tax offset reduces the tax payable directly, after the rates have been applied to taxable income. One dollar of offset saves one dollar of tax, whereas one dollar of deduction reduces taxable income by one dollar, saving only the marginal rate on that dollar.

Some offsets are calculated and applied by the ATO when the return is assessed, such as the low income tax offset for lower-income earners. These do not need to be entered separately in the return. Franking credits attached to dividends are also applied as an offset against tax payable.

Self-lodging through myTax suits people with settled financial affairs. The ATO pre-fills much of the return from data received from employers, banks and government agencies, and the 31 October deadline applies.

A registered tax agent can prepare and lodge a return on a person's behalf, generally with a later deadline if the person is added to the agent's client list before 31 October. The agent's fee for preparing the return is deductible in the following income year.

Only a person registered with the Tax Practitioners Board can charge a fee to prepare a tax return. The TPB maintains a public register of registered agents.

Most electronically lodged returns are processed within about two weeks. The ATO issues a notice of assessment confirming any refund or amount owing, together with the due date for payment where a bill results.

If a mistake is found after assessment, most individuals have a two-year amendment window. Keeping supporting records for five years matters because the ATO can review a return during that period and request evidence for any claimed deduction.

Example only. A resident individual earns $85,000 in salary, receives $600 in bank interest and $1,200 in fully franked dividends carrying $514 in franking credits. During the year the employer withheld PAYG tax. The person has $850 of substantiated work-related deductions.

Their assessable income is salary plus interest plus the grossed-up dividend amount. Subtracting the $850 of deductions gives taxable income. The 2025-26 resident rates and the 2% Medicare levy are applied, the franking credit offset and the low income tax offset are applied to reduce the tax payable, and the PAYG amounts already withheld are subtracted to arrive at the final refund or balance owing.

Specific figures are left out here because the result depends on the exact income composition, applicable offsets and withholding amounts for the individual.

Does everyone need to lodge a tax return?

Not always. The ATO publishes a lodgment requirement tool and a list of who must lodge. Most people with income above the tax-free threshold, or who had tax withheld during the year, are required to lodge.

What is a Notice of Assessment?

The Notice of Assessment is the document the ATO issues after processing a return. It confirms taxable income, the tax liability, Medicare levy, offsets applied, credits for amounts withheld, and the refund or balance owing.

Can capital losses be claimed as deductions?

No. Capital losses can only be offset against capital gains, not against ordinary income. Unused capital losses carry forward indefinitely to offset future capital gains.

What happens if the lodgment deadline is missed?

A failure-to-lodge penalty can apply. The ATO may issue a penalty notice based on the period the return is overdue and the amount of tax owing. Contacting the ATO or a registered tax agent promptly generally reduces the penalty risk.

Is the Medicare levy the same as the Medicare levy surcharge?

No. The Medicare levy is 2% of taxable income and applies to most residents. The Medicare levy surcharge is an additional charge of 1% to 1.5% that applies to higher-income earners without an appropriate private hospital cover policy.