What is tax?

Tax is defined as mandatory contributions levied on an individual or corporations by a local, state or federal government entity. Tax revenues finance government activities, including public works and services such as roads, schools, healthcare, defence, education, welfare and pensions, disaster relief and any other government related expenses.

In basic terms, every Australian resident with an income has to pay a certain percentage of their salary to the government in order to facilitate these government related expenses. The amount one pays is entirely dependent on how much they earn in a financial year. The more you earn, the more tax you will pay.

Taxable income can be earned from a variety of different avenues. These include, but are not limited to, salary, capital gains from investment appreciation, dividends or interest received as additional income. These will be explained in further lessons.

At the end of the Australian financial year (30th June), taxpayers need to lodge an annual income tax return which details how much income was earned. The amount of tax people and businesses pay can be reduced by claiming deductions that are directly related to earning the income.

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