Types of tax in Australia

Australia does not have one tax. It has a whole family of them, each attached to a different kind of activity: earning, buying, and owning. Once you can name the main ones, headlines about tax stop sounding like a foreign language.

Taxes on what you earn

Income tax is the big one, and the one that will appear on your payslip. Individuals pay it on wages, salaries, interest, dividends and business profits. Companies pay company tax on their profits. There is also capital gains tax, which applies when you sell an investment, like shares or an investment property, for more than you paid. It is not a separate tax with its own rate: the gain is added to your income and taxed with the rest.

Taxes on what you buy

GST, the goods and services tax, adds 10% to the price of most things sold in Australia, and it is already included in the price on the shelf. On top of GST, some products carry excise, an extra tax built into the price of petrol, alcohol and tobacco. Excise is partly about raising money and partly about discouraging the product: tobacco tax is deliberately heavy for exactly that reason.

Taxes on what you own or transfer

• Stamp duty: a state tax paid when you buy property, and in some states when you buy a car. On a home it can run to tens of thousands of dollars.
• Council rates: an ongoing charge on property owners that funds local services.
• Land tax: a state tax on the value of investment land, generally not on the home you live in.

Why so many taxes?

Partly history, partly design. Different levels of government are allowed to collect different taxes: the federal government runs income tax and GST, the states run stamp duty and land tax, and councils run rates. Spreading tax across earning, spending and owning also makes the system steadier, because when one source dips, the others keep flowing. For you right now, only two matter day to day: GST on what you buy, and income tax on what you earn.

A closer look at capital gains

Capital gains tax trips people up because they expect a separate bill with its own rate, and there is not one. When you sell an asset like shares or an investment property for more than you paid, the profit, called the capital gain, is added to your taxable income for that year and taxed at your normal marginal rate along with your wages. There is one important twist for individuals: if you held the asset for more than 12 months before selling, only half of the gain is taxed, a rule known as the capital gains tax discount. So the timing of a sale can change the tax on it, which is one reason the investing topic keeps coming back to holding for the long term rather than trading in and out.

The misconception that GST is a tax on shops

It is easy to assume GST is a tax that businesses pay, because it is the business that hands the money to the ATO. But the shop is only a collector. It adds 10% to the price, takes that extra from you at the register, and passes it on, so the cost falls on you as the consumer rather than on the business. This matters when you hear a shop say it will absorb the GST in a sale: what it really means is that it will lower its own price so the total you pay does not rise, not that the tax has vanished. The GST is always inside the price somewhere, and it is always the buyer who ends up carrying it.