With tax time right around the corner, it is important as an employer or employee/contractor to consider what is income and your obligations with the Australian Tax Office (ATO). Particularly from an employment perspective, sometimes it can be unclear what exactly income is, especially if a remuneration package includes benefits that are not just money.
In this article, we discuss forms of income from a legal perspective and how that may affect you.
What is Income?
Income is an amount you earn, derive or receive for your own use or benefit. Income is most commonly in the form of money. However, income can be in many other forms, such as:
- Services; or
- Other benefits in return for an item, action or promise.
For some employers, and employees, there is an agreement or wish to reward an employee in another form on top of the legal minimum wage for that role. This can also be relevant for businesses who engage contractors under specific terms of engagement involving different types of payment. This could mean that rather than paying individuals with money, payment to employees and contractors is by way of gifts, gift cards, rent or mortgage repayments, investments, and so on.
Are all forms of income assessable and required to be declared?
Assessable income is considered all gross income received through work, that is either money or other forms. This broad definition means that even if an employee is given a cash bonus in the form of a gift card, this is likely to be considered income.
Ultimately, this means an employee or contractor are required to declare or deem all forms of income to the ATO. Practically, as an employee or contractor, when completing your annual tax returns you must include not only all forms of income but also any taxable Australian Government pensions, payments & allowances. If there is any doubt, it is always best to get some advice from an accountant or from the ATO directly.
What effect does declaring income have?
The most obvious impact that declaring income is determining the amount of tax you should have paid for a financial year, resulting in either a refund being payable, or a tax debt owed. However, your declared income may also impact the amount of benefit you receive from pensions, payments & allowances. It is important to carefully consider the form of income you are receiving are whether you are required to declare it to the ATO.
Should you inadvertently not declare your income with the ATO, it is considered tax crime, which can result in serious consequences such as penalties, criminal conviction fines and prison sentences depending on the severity.
How can we help?
For further information about forms of income, either as an employer or employee/contractor, please contact our Business Team on 02 6285 8000 or by email.