Intro to Tax for Graduates

Posted by SEEK Grad

Aug 20th, 2024

Graduates will be required to pay taxes on their income when they are working. This is typically administered by your employer, who pays your tax on your behalf to the Australian Taxation Office. It is useful to understand what taxation involves so that you understand your obligations and so that you can calculate your take-home pay for yourself. This article will outline the different types of taxes that may apply, the different tax rates, and circumstances where taxation is withheld.

What is taxation?

Taxation on employees are the different types of taxes paid. They include income tax, superannuation, and fringe benefits tax. The different types of tax relate to the different aspects of your employment at a company or organisation.

What is a TFN?

Each person has a unique tax file number (TFN). You will be required to have a TFN to work in Australia. This number should be supplied to your employer so that they can withhold part of your income and supply it to the ATO.

What is PAYG?

PAYG stands for “pay as you go”. This means that with each pay slip, your employer will withhold income tax to provide to the ATO. This means that you will not be required to pay your income tax in a lump sum at the end of the financial year.

What are the different types of employee tax?

The different types of employee tax include the following:

Income tax

Income tax is the proportion of your income that you are required to pay to the Australian Taxation Office. This amount is determined by reference to your income. The greater your income, the greater the tax that you are required to pay. Typically, your employer will be responsible for withholding the portion of your income that constitutes tax. This will occur for each wage payment interval of the company. This might be weekly, fortnightly or monthly. It is common for your employer to withhold and pay more tax than is required on your behalf because of this. You are able to recollect the excess tax by submitting a tax refund form to the ATO at the end of the financial year.

The employer will pay the withheld portion of your income to the ATO for you. Despite this, it is technically still you who is paying the tax. The process is merely simplified by having your employer be the one who pays the tax on your behalf.

Superannuation

In Australia, the superannuation system requires you to make contributions to your pension fund at each pay cycle. This pension fund will be accessible to you upon retirement. The contributions to your superannuation are made in proportion to your income before tax. Since July 2022, the superannuation rate is 10.5%. Like income tax, the employer is also responsible for making contributions to your superannuation fund. However, superannuation is not a typical form of tax as you are not the one making the superannuation contribution from your income. It is instead the employer who is making the superannuation contribution in addition to the income you receive. Regardless, superannuation is still treated as a tax. The superannuation contributions are paid to the ATO by your employer. The ATO then deposits those contributions to your superannuation fund.

Fringe benefits tax

A fringe benefit is tax-free income that you may receive as an employee. You must agree to receive this. If your employer provides fringe benefits to you, it is required to pay these as tax to the ATO. You are not required to pay tax on a fringe benefit as it is not considered part of your taxable income. A fringe benefit is a type of salary sacrifice agreement. A salary sacrifice agreement is when you, as an employee, agree to receive less income for a returned benefit. Your employer's contributions to your superannuation fund may also be a type of salary sacrifice agreement if your employer chooses to make contributions that are above the super guarantee percentage.

When is tax withheld?