Student Tax Deductions – Complete Guide to Organise Your Adulthood Finances

The minute you enter adulthood, you are required to land a part time job, open a bank account and tackle taxes. Unfortunately, most of us find our tax obligations a little daunting. But don’t worry if you’re feeling lost. Jaxon Rylah, go-to tax guru, has got your back in this helpful guide about student tax deductions and obligations in Australia. 

Jaxon has distilled the top tax questions that every Australian university student must have on the radar. These questions will help you figure out if you need to file an income tax return the ongoing tax year. Plus, Jaxon will spill the beans on how to prepare your tax return like a pro.

We’re going to cover all the essentials – from understanding your student tax obligations to student tax deductions essentials tailored just for you. We will dive into education-related tax benefits and find out the truth behind financial aid tax considerations. Oh, let’s not forget about the sneaky state-specific tax tidbits for those of you studying away from your permanent residence.

Are you an Australian Citizen?

The first step is to determine if you’re an Australian resident to meet your income tax obligations. Here’s what you need to know:

If you were born in Australia and currently live here, you’re generally considered an Australian resident for tax purposes. Simple as that!

Now, here’s the interesting part: You are still classified as an Austraian resident even if you are an international student.

But How? The Australian Taxation Office (ATO) considers international students who stay in Austrlia longer than six months as Austrlian citizens who must meet all tax obligations.

Here’s why:

According to the ATO’s taxation ruling, TR98/17, international students who spend 6 months or longer in Australia are considered. ATO gave this ruling after an incident where they considered an international student who came to Australia for a four-year university course as an Australian tax resident. Although he left Australia after six months due to a family illness, ATO considered his living and working arrangements in Australia consistent with those living here permanently.

If you’re not sure about your tax residency, it’s best to get in touch with the ATO or a registered tax agent. They can provide you with the clarity you need based on your specific situation.

Tip: Keep in mind that being an Austrlian resident for tax purposes is not the same as being a permanent resident for Australian immigration purposes.

What are my Student Tax Obligations?

Australian students must report all income including wages from part-time jobs in Australia or interest income from your home country.

Obtain a Tax File Number (TFN) from the Australian Taxation Office (ATO) and provide it to your employer to ensure correct tax withholding.

If your income exceeds the tax-free threshold ($18,200 for the 2023-24 financial year), you must lodge a tax return and report your income. You can claim any applicable student tax deductions or offsets.

Keep track of any work-related expenses or self-education expenses that you can claim as 

As an Australian resident, you may be required to pay the Medicare Levy, which supports the country’s healthcare system.

What is the tax-free threshold, and how does it apply to students?

Australian resident students and international students living in Australia for more than 6 months must pay tax as shown in the table below.

ATO Resident Tax Rate 2023-24

This table does not include the 2% medicare levy.

You can also claim the tax-free threshold if you have worked multiple jobs during the year as long as your total income does not exceed $18,200. 

As an international student, what are my tax obligations in Australia? 

The Australian Taxation Office (ATO) generally considers international students who have been in Australia for six months or longer as Australian residents for tax purposes. So, you’ll be treated just like Australian residents for paying taxes.

You must report and pay tax on your assessable income including all income from part-time jobs, scholarships, internships, and any other sources in Australia and worldwide.

You will need to obtain your Tax File Number (TFN) to manage your tax affairs in Australia. Don’t worry, it’s easy to apply for one online through the ATO’s website.

Comply with any visa imposed work restrictions. Do not exceed the permitted number of working hours while studying.

Most international students are exempt from paying the Medicare Levy only if their student visa doesn’t offer healthcare arrangements with Australia.

International students may get tax exemptions or deductions if your Home country and Australia have signed a tax treaty. Talk to the ATO or a tax professional to know your specific provisions.

ATO Foreign Students Tax Rates 2023-24

Income and Student Tax Deductions:

What types of income is included in tax return?

When filing your tax return in Australia, you are required to include various types of income. Here are the common types of income that need to be reported:

• Employment Income including salary, wages, tips, bonuses, and allowances from your job or part-time work.
• Investment Income generated from interest earned from bank accounts, dividends from shares, rental income from properties, and capital gains from the sale of assets.
• If you’re self-employed or run a business, you need to report the business income earned from your business activities. (no need to include income from hobbies)
• Government Payments such as JobKeeper, JobSeeker, or Youth Allowance need to be included as taxable income.
• Foreign Income earned from overseas sources like employment, investments, or rental properties must be declared on your tax return.
• Income from independent contractor fee
• Family trust or partnership distributions earnings

What do I Need for Student Tax Return in Australia?

You should have Tax File Number (TFN) if you’ve been employed before. But if you don’ have itt, apply for a TFN from the ATO website.  

You will need the following things to complete your tax return:

• Payment summary from your employer—it’s a statement showing how much income you earned and the tax they withheld. 
• Bank statements showing any interest you earned
• Dividend slips for any shares you own
• Invoices and receipts for any work-related expenses or deductions.

If you are expecting a refund, nominate a bank account in your income tax return to receive the amount. 

If you have a TFN and have a relatively simpler tax return, you can directly go to the ATO myTax online services to lodge your tax return conveniently. 

Read More: How to Lodge Tax Return in Australia?

It’s best to reach out to a registered tax agent to deal with complicated tax situations without missing out anything.

Tip: 

The deadline for lodging your tax return in Australia is generally around 30th June. 

Student Tax Deductions and Returns

What self-education expenses are eligible for tax deduction claims?

If you’re studying a course to maintain or enhance your skills in your current occupation, you can claim the expenses as self-education costs. 

This includes course fees, textbooks, stationery, travel expenses, and the depreciation of items like laptops, tablets, or printers used for your studies.

You can’t claim study costs if you are not pursuing a specific career yet. 

For example, an undergraduate student can’t claim expenses for initial academic qualification. 

Similarly, if you’re switching careers, you can’t claim the costs of studying in a completely new field.

Unfortunately, you also can not claim HELP or Higher Education Loan Program (HELP) repayments.

Similarly, you will include all your scholarships as income in your tax return and they may not be eligible for tax deductions.

See the ATO’s Taxation Ruling TR98/9 for more information on why you can and can not claim deductions.  

What type of personal expenses I can claim?

Let’s dive into the types of personal expenses you can claim on your tax return:

Donations to Deductible Gift Recipients: 

If you’ve made donations of $2 or more to a deductible gift recipient, like the Australian Red Cross charity, you’re eligible for a deduction. Keep copies of the receipts as proof of your contributions.

Fee Paid to a Registered Tax Agent: 

You can claim a deduction for the fee you paid to a registered tax agent to manage your tax affairs. It’s important to note that this deduction is added to the following year and works as an incentive to complete your tax return in a timely manner.

If you recently made any gold-coin donations, you can claim up to $10 deduction without needing a receipt. So, those small contributions you made into collection buckets can still add up.

Can I Claim Work Related Expenses?

You can claim certain student tax deductions to reduce your assessable income.

These deductions fall into three main categories: work-related expenses, self-education expenses, and personal deductions.

Here are some common types of work related student tax deductions:

• Subscription and union fees that relate to your work.
• Costs for protective clothing or compulsory work uniforms.
• If you’re required to work from home after hours, you may claim home office expenses. Just keep a record of the hours worked from home for at least four weeks.
• Phone and internet costs directly related to your work.
• Travel expenses between different work sites (but not for travel between your home and work).

If you use tools of trade, briefcases, or calculators costing less than $300 for work, you can claim a deduction for them.

You can not claim tax deductions for reimbursements. 

The ATO closely scrutinizes work-related expense claims. Keep written records like invoices, receipts, and bank statements to support your deduction claims.

Double-check the requirements and keep the necessary documentation ready for a smooth and accurate tax filing process.

What are Tax Return Offsets for Students in Australia?

Tax offsets are different from deductions. While deductions reduce your assessable income, tax offsets are applied as credits directly to reduce your tax payable. In some cases, certain tax offsets result in a refund if the tax credit exceeds your tax payable.

Here are the most common tax offsets you can claim as a student:

Beneficiary Tax Offset:

If you receive Newstart Allowance, Youth Allowance, Austudy payments, or certain other Commonwealth education or training programs, you may be eligible for the beneficiary tax offset.

Franking Credit Tax Offset:

If you’re a shareholder in an Australian company and receive franked dividends, you might qualify for the franking credit tax offset. This offset allows you to claim a tax credit for the tax the company has already paid on its income.

Small Business Tax Offset:

If you’re a student running a business, you may be entitled to the small business income tax offset. This offset equals 8% of the income tax payable on the portion of your taxable income that qualifies as “total net small business income.” However, keep in mind that the aggregated turnover of your business should be less than $5 million to be eligible for this offset.

The small business income tax offset can be complex, so it’s advisable to seek specialist advice.

Review the specific eligibility criteria and guidelines for each tax offset and consult with a registered tax agent for better guidance.

Oops! I made a mistake on my tax return. What Happens Now? 

First of all, no need to panic! You made a mistake on your tax return – it’s alright, it happens to the best of us! 

Now, Here’s what you should do:

1. Assess the Error: Figure out where you made the mistake and How significant is it?
2. Lodge an Amendment with the ATO: Correct the mistake by requesting an ammendment online or through a tax agent.
3. Follow Time Limit: You will have two years from the date of the original notice of assessment to make amendments.
4. Seek Professional Advice: If you’re unsure about what to do, consult a tax agent for guidance. They’ll help you through the process according to ATO rules.
5. Consider the Potential Outcomes: Depending on the error, the ATO will reassess your tax liability. You may need to pay more tax or they will adjust your refund.

Common Mistakes to Avoid on Student Tax Return

• Providing incorrect or incomplete information.
• Failing to report all sources of income.
• Overlooking eligible deductions.
• Claiming ineligible expenses.
• Missing the tax return deadline.
• Not seeking professional guidance when needed.

Are there any traps you should be aware of? 

If you’re under 18 years old on the last day of the tax year, special rules come into play to discourage your parents from splitting income with you. 

This means that you may be subject to penalty tax rates upto 45% on any dividends, interest, rent, royalties, or a distribution you receive from a family trust.

However, these rules do not apply if you are a MINOR (under 18 years old) and fall under any of the following categories:

• Engaged in full-time work or running a business
• Receiving a carer allowance, disability support pension, or double orphan pension
• Person with a disability or a beneficiary under a special disability trust

If you find yourself in a situation where your parents or guardian are splitting income with you, seek specialist advice.

The Bottomline

Stepping into adulthood finances can be daunting – especially for students. But with proper guidance and support, you can oblige by local tax guidelines. Follow ATO strictly for student tax return updates and seek professional advice as needed.

Related Links:

• How Long Does Tax Return Take in Australia?
• Work from Home Tax Deduction In Australia: Check Your Eligibility