Think all income is taxed the same? Think again. For many Australians, the lines between taxable and non-taxable income are surprisingly blurred. Whether you’re a full-time employee, small business owner, or investor, misunderstanding how different types of income are treated can lead to costly mistakes—missed deductions, ATO audits, or even paying more tax than necessary. And with new income streams emerging from side hustles, government benefits, and digital assets, staying informed is more important than ever.
In this blog, we break down exactly what qualifies as taxable income and what falls under non taxable income. You’ll learn how to handle non taxable benefits for employees, navigate non taxable investment income, and properly account for these when filing taxes. We’ll also show you how to use the federal income tax calculator to estimate your liability and avoid surprises when lodging your income tax return. Let’s get into it.
What is Taxable Income?
Taxable income is the income you are legally required to report to the ATO and pay tax on. It includes earnings from various sources such as:
- Salaries and wages
- Business income
- Rent from investment properties
- Dividends and interest
- Capital gains from asset sales
Your total taxable income is calculated by adding all assessable income and then subtracting allowable deductions such as work-related expenses, donations, and depreciation. The amount left is what you pay tax on, according to your income bracket.
To estimate your tax payable, you can use the official federal income tax calculator by Moneysmart.
What is Non-Taxable Income?
Non taxable income refers to income that does not need to be reported in your tax return, or income that is not subject to tax. This includes payments or benefits that are either exempt by law or fall below certain thresholds.
Examples of income that is not subject to tax in Australia:
- Certain government payments (e.g. Family Tax Benefit, some Centrelink allowances)
- Gifts or inheritances from family and friends
- Lottery and prize winnings
- Certain superannuation lump sum payments
- Some scholarships and educational payments
It’s important to remember that not all non taxable income is permanently exempt. For example, some payments may be tax-free under specific conditions or only partially exempt.
Non-Taxable Benefits for Employees
Some employers offer non taxable benefits for employees, also known as exempt fringe benefits. These are benefits that do not attract Fringe Benefits Tax (FBT) and do not need to be reported as income.
Examples include:
- Work-related travel and meal allowances under specific limits
- Minor benefits (under $300) provided infrequently
- Portable electronic devices for work (e.g., phones, laptops)
- Contributions to certain registered superannuation schemes
However, not all employee benefits are exempt. Cars for personal use or entertainment allowances may be considered taxable. It is crucial for both employers and employees to understand the tax implications of each benefit.
Non-Taxable Investment Income
Non taxable investment income includes investment earnings that do not require tax payment under specific laws or exemptions.
Common examples:
- Certain government-issued bonds
- Capital gains on a principal residence (not an investment property)
- Foreign income that has already been taxed overseas and exempt in Australia under double tax agreements
If you’re unsure whether your investment earnings fall under non taxable income, it’s advisable to consult a tax professional. Keeping accurate records is key to defending your tax position in case of ATO review.
Filing Taxes with Non-Taxable Income
Even though non taxable income isn’t always included in your assessable income, you may still need to disclose it in specific sections of your income tax return. This is especially true when applying for certain benefits or offsets where your total income is considered.
Tips for filing taxes with non taxable income:
- Use the correct labels and sections in your tax return
- Keep records of exempt payments or benefits
- Report income from both taxable and non taxable sources clearly
Some types of non taxable income may affect your eligibility for government payments or healthcare cards, so accuracy is essential.
Common Examples of Taxable vs Non-Taxable Income
| Income Type | Taxable? | Notes |
| Salary and wages | Yes | Declared in your income tax return |
| Centrelink Family Tax Benefit | No | Government classified as non taxable income |
| Dividends from Australian shares | Yes | Includes franking credits |
| Inheritance from parents | No | Not assessable, but earnings from it may be taxed |
| Rental income | Yes | Must report gross rent and claim deductions |
| Prize winnings (lottery) | No | Usually not subject to income tax |
Impact of Misclassifying Income
Reporting non taxable income as taxable (or vice versa) can lead to:
- Overpaying or underpaying taxes
- ATO audits or reassessments
- Loss of government benefits or offsets
To ensure accurate reporting, it’s recommended to seek assistance from qualified tax professionals who can identify which sources of income should be included or excluded from your return.
Expert Help from Sagacity Accounting and Taxation
At Sagacity Accounting and Taxation, we help individuals, employees, and businesses across Australia understand and report their taxable and non taxable income with confidence. Whether you’re unsure how to handle non taxable investment income, or need clarity on non taxable benefits for employees, our experts provide tailored solutions to simplify your tax obligations.
From basic salary earners to high-net-worth individuals with diverse portfolios, we ensure your income tax return for non taxable income is fully compliant and optimised. Our goal is to keep you informed, audit-ready, and financially secure.
Need assistance? Contact Sagacity today to book a tax consultation or visit our Business Tax & Accounting Services page.
Taxable and Non-Taxable Income Across Industries We Serve
Every industry has its own unique income structure—and that means unique tax considerations, too. Whether you’re a healthcare practitioner navigating Medicare levy obligations, a FinTech entrepreneur dealing with digital assets and startup equity, or part of the construction and trades sector juggling allowances and contractor income, understanding the taxable and non taxable income relevant to your field is vital. At Sagacity Accounting and Taxation, we also work closely with the education and non-profit sectors, helping clients properly categorise non taxable benefits like scholarships or government funding. Our tailored support ensures your tax reporting aligns with specific industry standards.
Conclusion
Navigating the difference between taxable and non-taxable income is essential for accurate tax reporting, compliance, and avoiding financial surprises. While taxable income must be declared and taxed appropriately, many types of non taxable income can offer relief if properly managed.
With a better understanding of the rules around non taxable benefits, investments, and exempt income sources, you can make informed decisions when filing taxes and maximise your entitlements.
Let Sagacity Accounting and Taxation help you file with confidence.
FAQs
1. What income is considered non taxable in Australia?
Examples include gifts, inheritances, Family Tax Benefits, and certain redundancy payments.
2. Do I need to declare non taxable income on my tax return?
Not always, but some exemptions must still be noted depending on your situation.
3. Are all employee benefits tax-free?
No. Some are non taxable benefits, while others like company cars may be taxable.
4. What is non taxable investment income?
Earnings from exempt assets like your home or certain foreign investments.
5. Where can I calculate my taxable income?
Use the federal income tax calculator to estimate how much tax you owe.
