The income individuals receive from salary and wages is usually paid during the year under the pay as you go (PAYG) withholding system.
Under the PAYG withholding system:
- people quote their tax file number (TFN) to payers of income such as employers, banks, super funds, public companies and government agencies
- employers (and in certain circumstances, other payers) withhold tax from the payments they make to individuals and pay the tax directly to us during the year
- payers report details of the payments they made to individuals and the tax withheld to us during or after the end of an income year.
If a person chooses not to quote their TFN, payers are required to withhold tax at the top marginal income tax rate. Given this, there is a strong incentive for individuals to register in the system by applying for a TFN and quoting it to payers.
This information provides details of the PAYG withholding system in operation for individuals not in business.
Find out about:
- Number of taxpayers in Australia
- How people lodge their tax return
- PAYG withholding system for individuals
- Using third-party data
- Trends and insights for individuals
See also
Number of taxpayers in Australia
People register in our Australian tax system by getting a tax file number (TFN). At 30 June 2019, there were around 17 million active TFNs registered to individuals not in business.
We use TFN registrations and information we receive from third-party data providers and taxpayers to estimate how many people we expect to lodge an individual income tax return each year.
Not all individuals have an obligation to lodge a tax return. Generally, Australian residents for tax purposes who earn less than the tax-free threshold are not required to lodge. Foreign residents for tax purposes are usually only required to lodge if they earn income in Australia.
In 2018–19, we predicted that 11.2 million individuals not in business had a requirement to lodge. Of those, around 10 million people lodged a 2017–18 return. The numbers within this population are fluid, because they constantly shift in line with individuals’ changing circumstances.
The information contained in Tax and individuals – not in business focuses on the non-business segment of the taxpayer population.
All data reported is based on 2017–18 income tax returns as at 30 June 2019 (unless otherwise indicated).
Due to changes in the way we have defined the individuals segment over time, some tax return data relates to different populations. We have noted this.
Statistics included may differ from other publically available information due to differences in population definitions, timing of data extraction and period of analysis.
How people lodge their tax return
People generally interact with the ATO once a year by lodging a tax return. Of the individuals who lodged a 2017–18 return:
- 63.5% lodged through a tax agent
- 34.6% lodged their own return using myTax
- 1.9% lodged their own return on paper or by phone.
Over the past five years, the proportion of people choosing to lodge through a tax agent has decreased, and the proportion of people receiving a tax refund has decreased slightly. The use of electronic lodgment channels by both agents and people who prepare their own tax (self-preparers) has increased steadily from 95% for 2013–14 income year returns to 98% for 2018 returns.
Tax returns |
2014–15 (2013–14 returns) |
2015–16 (2014–15 returns) |
2016–17 (2015–16 returns) |
2017–18 (2016–17 returns) |
2018–19 (2017–18 returns) (see note 1) |
|---|---|---|---|---|---|
Lodged by tax agent |
67.3 |
67.1 |
65.9 |
64.7 |
63.5 |
Lodged electronically |
95.1 |
96.0 |
96.8 |
97.6 |
98.0 |
Received refund |
87.1 |
86.2 |
84.8 |
85.6 |
84.0 |
PAYG withholding system for individuals
As most of the income received by individuals is salary or wages, most of the income tax payable is collected from employers during the year, under the PAYG withholding system. There is generally a high level of voluntary compliance in this system and based on our data, we estimate employers are paying about 96% of the PAYG withholding they are required to without intervention from us.
When individuals lodge a tax return to report their income, deductions and offsets, they receive a credit for the tax withheld under the PAYG withholding system.
Figure 1: Individuals not in business – 2017–18 tax return outcome
Higher levels of withholding compared to tax raised are due to the way withholding is calculated – this is on gross income, rather than net income. While there are mechanisms in place to allow the amount withheld to be reduced, they are rarely used by taxpayers. Instead, individuals appear to prefer to receive a larger refund when they lodge, rather than reduce withholding throughout the year.
Most people who lodge a tax return receive a tax refund. In their 2018 tax returns, individuals:
- reported $594.9 billion in income
- claimed $22.1 billion in deductions and prior year losses
- received $8.6 billion in tax offsets.
The outcome for most people (84%) was a tax refund and around 11% owed tax.
Figure 2: Individuals not in business – 2017–18 tax return summary
See also:
Using third-party data
We have strong controls in place to verify most sources of income, although we have concerns about non-reporting of cash wages. Employers, other payers and data providers, such as state and territory land title offices, provide data to us under third-party reporting arrangements. We cross-check information in tax returns with over 650 million transactions from third parties to ensure all income is declared and the correct offsets and exemptions are claimed. Additionally, the data we collect enables us to provide pre-filling services to people who use myTax and tax agents to make it easy for them to correctly report income.
We also use third-party data to:
- verify the income reported by individuals
- identify individuals who have an obligation to lodge but are yet to do so.
Around 91%Footnote2 of the income reported by individuals not in business can be pre-filled in tax returns. For the remaining 9% we have some data to verify claims, partially pre-fill return items or provide ‘nudge’ messages to remind preparers to correctly report income.
Around 42% of individuals lodge their tax returns before mid-August which is when we receive the majority of the third-party data we use to pre-fill tax returns. For these people, there may be gaps in the data we can pre-fill in their return. We are working with third-party data providers to receive data earlier and reduce these gaps.
We have strong controls in place to verify almost all tax offsets. Tax offsets reduce the amount of tax payable on an individual’s income.
Most types of tax offsets are non-refundable. This means the offset can, at most, only reduce an individual’s tax payable to zero. Examples of non-refundable tax offsets include the senior and pensioner tax offset and the low income tax offset.
Other tax offsets, such as the franking credit offset and the private health insurance rebate, are refundable and may result in a taxpayer receiving a refund in excess of their gross tax liability.
We use tax return and third-party data to determine an individual’s entitlement to some tax offsets – for example, the franking credit tax offset, the private health insurance rebate and the low income tax offset. For other tax offsets, individuals self-assess their entitlement when preparing their return.
For around 52% of the value of offsets claimed by individuals we are able to pre-fill claims or use data to verify them. For a further 46% we partially pre-fill return items or provide ‘nudge’ messages to remind preparers to only claim tax offsets they are entitled to.
For deductions, where third-party data is either unavailable or costly to obtain, we use comparative analytical models to identify higher than expected claims.
Given the diverse nature of the deductions an individual may claim, there is limited scope to use third-party data to verify claims for deductions. Individuals self-assess their entitlement to claim deductions and have an obligation to keep records to prove the claims they make.
For work-related expenses, we compare deductions claimed by individuals against their peers (those earning similar income, in similar occupations) and scrutinise the deductions claimed. We use the results of our analysis to:
- let people using myTax know when the amount they are claiming is higher than usual given their personal circumstances in an on-line prompt. We are currently extending this service to tax agents.
- improve and expand our pre-issue checks
- understand the risk profile for a tax agent’s client base.
Trends and insights for individuals
We constantly monitor the individuals income tax system to identify changes. This helps us gain a deeper understanding of how different components are operating and interacting, and alerts us to areas that might need attention.
For the 2017–18 return, individuals reported $125.4 billion in net income tax. Individuals in the top two income tax brackets contributed 59.9% of the net income tax.
Income tax bracket |
Individuals |
Individuals who pay tax |
Income tax reported |
Median net tax ($) (where net tax > $0) |
Effective tax rate |
|---|---|---|---|---|---|
$0–$18,200 |
17.3 |
4.9 |
−0.2 |
$1,373 |
17.7 |
$18,201–$37,000 |
20.9 |
74.3 |
2.0 |
$1,992 |
6.4 |
$37,001–$87,000 |
42.5 |
99.8 |
38.3 |
$10,715 |
18.6 |
$87,001–$180,000 |
16.2 |
99.9 |
41.6 |
$29,899 |
27.1 |
$180,001 or more |
2.4 |
99.6 |
18.3 |
$77,439 |
35.3 |
Changes in the past five years
Over the past five years, the amount of PAYG withholding and other credits reported by individuals in their tax returns has increased by around 4% to 7% each year and refund total value has increased by 1% to 3%. The total value of debit assessments issued has also increased significantly (21%) for the 2017–18 return.
Element |
2013–14 |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
|---|---|---|---|---|---|
PAYG and other credits collected (%) |
– |
6.2 |
4.7 |
3.6 |
6.3 |
PAYG and other credits collected total ($b) |
113.2 |
120.2 |
125.87 |
130.4 |
138.6 |
Refunds (%) |
– |
2.7 |
0.2 |
4.0 |
0.5 |
Refunds total ($b) |
17.1 |
17.6 |
17.6 |
18.3 |
18.4 |
Debit assessments (%) |
– |
12.4 |
5.0 |
2.5 |
40.1 |
Debit assessments total ($b) |
3.0 |
3.4 |
3.6 |
3.7 |
5.2 |
Net reported income tax (%) |
– |
7.0 |
5.4 |
3.5 |
8.3 |
Most of the income reported by individuals not in business is salary or wages. Of those who lodged a 2017–18 tax return, 86.2% received income from salary or wages amounting to 89% of all income reported by this segment.
Over the past five years, the proportion of individuals who reported income from the most common sources has remained relatively stable.
Income source |
2013–14 |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
|---|---|---|---|---|---|
Salary or wages (%) |
89.3 |
89.1 |
88.7 |
88.2 |
86.2 |
Salary or wages total ($b) |
461.8 |
476.3 |
494.8 |
511.2 |
529.9 |
Gross interest (%) |
53.6 |
55.0 |
55.1 |
53.1 |
53.2 |
Gross interest total ($b) |
6.4 |
5.9 |
5.1 |
4.4 |
5.1 |
Dividends (including franking credits) (%) |
17.8 |
17.5 |
17.4 |
16.6 |
18.3 |
Dividends total ($b) |
5.8 |
6.0 |
6.0 |
6.0 |
9.5 |
Of the individuals who reported income from salary or wages, the proportion who report income from multiple employers in the same income year has increased from 29% in 2015–16 to 32% in 2017–18.
No. of employers |
2013–14 |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
|---|---|---|---|---|---|
1 employer |
70.9 |
70.9 |
70.9 |
69.9 |
68.2 |
2 employers |
20.3 |
20.3 |
20.3 |
20.9 |
22.1 |
3 employers or more |
8.8 |
8.8 |
8.8 |
9.3 |
9.6 |
The proportion of individuals who reported net rental income has increased slightly from 13.3% in 2014 to 13.5% in 2018. Claims by those with rental income for ‘other rental deductions’ have been steadily increasing. It is expected this is due in part to the rising costs of expenses such as council rates, land tax and utilities. Rental interest deductions have also increased over the same period.
Income and deductions |
2013–14 |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
|---|---|---|---|---|---|
Gross rental income |
20.0 |
21.0 |
22.0 |
23.1 |
24.2 |
Rental interest deductions |
12.1 |
12.3 |
12.6 |
12.7 |
13.2 |
Capital works deductions |
1.6 |
1.7 |
1.9 |
2.1 |
2.2 |
Other rental deductions |
10.0 |
10.7 |
11.3 |
11.9 |
12.2 |
Net rental income |
−3.6 |
−3.7 |
−3.8 |
−3.6 |
−3.3 |
Some people interact with the tax system by making payments through the year under the PAYG instalment (PAYGI) system. However, the number of individuals in this system has declined in recent years.
Individuals not in business – number and tax collected in PAYG instalment system by year
PAYG instalment system |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
|---|---|---|---|---|---|
Number of individuals |
432,554 |
440,747 |
421,758 |
391,137 |
392,579 |
PAYGI collections ($m) |
3,362 |
3,822 |
3,220 |
3,079 |
3,542 |
Trends in 2017-18
Around 79% of individuals not in business claim deductions of some type. Most deductions claimed are for work-related expenses. Of the individuals not in business who lodged a 2017–18 tax return, over 70% claimed work-related expenses. This accounted for around 76% of the value of all deductions claimed.
However, only employees (those who earn salary and wages) are entitled to claim work-related expenses. 81% of individuals not in business who earned salary and wages made a work-related expenses claim in 2017–18.
Type of deduction |
Individuals who claimed |
Deductions |
|---|---|---|
Total work-related expenses |
70.2 |
76.3 |
Cost of managing tax affairs |
46.5 |
5.7 |
Gifts or donations |
34.4 |
6.0 |
Seven million individuals not in business claimed deductions totalling around $16.6 billion for work-related expenses in their 2017–18 returns. These figures do not account for those taxpayers who work as employees but also have links to business. In 2017–18, that group claimed an additional $4 billion in total work-related deductions.
Type of deduction |
Individuals claiming (%) |
Value claimed ($b) |
|---|---|---|
Car expenses |
28.6 |
6.3 |
Travel expenses |
11.2 |
1.5 |
Clothing expenses |
51.7 |
1.5 |
Self-education expenses |
4.4 |
0.9 |
Other work-related expenses |
58.2 |
6.5 |
See also:
Most individual taxpayers in Australia pay tax to the ATO during the year through pay as you go (PAYG) withholding from salary and wages. This page provides details of PAYG withholding for individuals not in business.- Footnote 2
- Source: unpublished ATO tax return data