Australian tax terms, in plain English

A

Accrual basis (Accrual accounting)

Recognising income when invoiced and expenses when incurred, rather than when cash moves. Required for most businesses over the GST cash-accounting turnover threshold.

Assessable income

All income the law includes in your tax calculation before deductions — salary, business income, interest, dividends, rent, capital gains and foreign income.

ATO small business benchmarks (Benchmarks)

Industry ratios (such as cost of goods to turnover) the ATO uses to identify businesses reporting outside the normal range for their industry code.

Australian Business Number (ABN)

An 11-digit identifier for businesses dealing with the ATO, other businesses and the public. Without one, payers must generally withhold 47% from payments to you.

B

Business Activity Statement (BAS)

The periodic statement reporting GST, PAYG withholding and PAYG instalments. Usually quarterly; monthly for larger businesses.

C

Capital Gains Tax (CGT)

Tax on the gain made when you dispose of an asset. Individuals holding an asset over 12 months generally get a 50% discount on the gain.

CGT cost base (Cost base)

What an asset cost you for CGT purposes: purchase price plus stamp duty, legal fees, agent commission and capital improvements, adjusted for deductions already claimed.

CGT event

The transaction that triggers a capital gain or loss — usually the contract date for a sale, not settlement.

Concessional super contribution (Concessional contribution)

A before-tax super contribution — employer contributions, salary sacrifice, or personal contributions you claim a deduction for. Capped at $30,000 a year, with carry-forward of unused cap available in some circumstances.

D

Deductible Gift Recipient (DGR)

An organisation endorsed to receive tax-deductible donations. Charity registration alone doesn't confer DGR status.

Depreciation (capital allowances) (Depreciation)

Deducting the cost of an asset over its effective life. Some assets qualify for immediate write-off depending on the year and the business's turnover.

Division 293 tax (Div 293)

An additional 15% tax on concessional super contributions for individuals whose income plus contributions exceeds $250,000.

Division 7A (Div 7A)

Rules treating loans, payments or forgiven debts from a private company to a shareholder or associate as unfranked deemed dividends unless a complying loan agreement with minimum repayments exists.

E

Early Stage Innovation Company (ESIC)

A qualifying early-stage company whose investors can access a 20% tax offset and a CGT exemption on shares held one to ten years.

Effective life

The period over which a depreciating asset can be used to produce income — the basis for its depreciation rate.

F

Failure to lodge penalty (FTL penalty)

A penalty for lodging a return or statement late, charged in units per 28-day period. Remission can be requested where there's a reasonable explanation.

Franking credit (imputation credit) (Franking credit)

A credit attached to a dividend for company tax already paid. Grossed up into your income, credited against your tax, and refundable to individuals and super funds.

Fringe Benefits Tax (FBT)

Tax paid by employers on non-cash benefits given to employees or their associates — company cars, entertainment, and some allowances.

G

General Interest Charge (GIC)

Interest the ATO charges on unpaid tax debts, compounded daily. It is no longer deductible for income years starting on or after 1 July 2025.

Goods and Services Tax (GST)

A 10% tax on most supplies of goods and services. Registration is compulsory once turnover reaches $75,000 ($150,000 for non-profits).

H

HELP debt (HELP)

Higher Education Loan Program debt, repaid through the tax system once repayment income exceeds the annual threshold. Indexed annually.

I

In-house asset (SMSF) (In-house asset)

An SMSF's loan to, investment in, or lease with a related party. Generally limited to 5% of fund assets, with business real property a key exception.

Instalment Activity Statement (IAS)

A statement for reporting PAYG withholding or instalments where GST isn't reported in the same period.

Instant asset write-off

A concession allowing eligible small businesses to deduct the full cost of qualifying assets in the year of purchase, subject to a cost threshold that changes between years.

L

Limited Recourse Borrowing Arrangement (LRBA)

The only way an SMSF can generally borrow — the lender's recourse is limited to the single acquirable asset, held in a separate bare trust.

M

Main residence exemption

The CGT exemption for your home. It can be reduced by income-producing use, and non-residents are generally denied it on sale.

Marginal tax rate (Marginal rate)

The rate applying to your next dollar of income. It's the rate that matters for deciding whether a deduction or a contribution is worthwhile.

Medicare levy

A 2% levy on taxable income, with reductions for low income earners.

Medicare Levy Surcharge (MLS)

An additional 1%–1.5% for higher-income earners without an appropriate level of private hospital cover, applied on a tiered income scale.

N

No-ABN withholding (ABN withholding)

Where a supplier doesn't quote an ABN, the payer must withhold 47% of the payment and remit it to the ATO.

Non-commercial loss rules (Non-commercial loss)

Rules deferring business losses for individuals unless a test is met — commonly $20,000 assessable income from the activity or profit in three of five years, with an income requirement under $250,000.

Notice of assessment

The ATO's statement of your assessed tax position for a year. It starts the clock on amendment periods.

P

PAYG instalments

Prepayments of income tax on business and investment income, usually quarterly, based on prior-year figures. They can be varied where circumstances change.

PAYG withholding

Tax an employer withholds from wages and remits to the ATO, reported through Single Touch Payroll.

Payroll tax

A state tax on wages above a threshold. In Queensland it also captures certain contractor and medical practice arrangements.

Personal Services Income (PSI)

Income mainly for your personal skills or effort. Where the PSI rules apply and you're not a personal services business, income is attributed to you and deductions restricted regardless of structure.

R

Research and Development Tax Incentive (R&D Tax Incentive)

A program providing a tax offset for eligible R&D activities — refundable for smaller companies, so it can produce a cash refund. Requires annual registration and contemporaneous records.

S

Single Touch Payroll (STP)

Reporting salaries, PAYG withholding and super information to the ATO with each pay run. Phase 2 requires more granular reporting of income types.

Small business CGT concessions

Four concessions (15-year exemption, 50% active asset reduction, retirement exemption, rollover) that can substantially reduce or eliminate CGT on the sale of business assets.

Sole purpose test (SMSF) (Sole purpose test)

The requirement that a super fund be maintained solely to provide retirement benefits. Breaching it is among the most serious SMSF compliance failures.

Substantiation

The evidence requirement for deductions — receipts, log books, diaries. Written evidence is required once total work-related expenses exceed $300.

Superannuation guarantee (SG) (Superannuation guarantee)

Compulsory employer super contributions, currently 12% of ordinary time earnings, payable quarterly. Late payments are not deductible.

T

Tax File Number (TFN)

Your personal identifier in the tax system. It should never be sent by ordinary email.

Taxable income

Assessable income less allowable deductions — the figure your tax is calculated on.

Taxable Payments Annual Report (TPAR)

An annual report of payments to contractors in specified industries including building and construction, cleaning, couriers, IT and security. Due 28 August.

Transfer balance cap

The lifetime limit on how much super can be moved into retirement-phase pension accounts. Indexed periodically.

Trust distribution resolution (Trust distribution)

The trustee's decision, required before 30 June, allocating trust income to beneficiaries. Without it the trustee may be taxed at the top marginal rate.

W

Work in progress (WIP)

Work performed but not yet invoiced. Recognising it correctly matters for both reporting accuracy and which year profit falls into.