Imagine this: You receive a lump sum insurance payout after an accident or a redundancy payment from your job. You assume it is income and include it in your tax return—only to find out later that it was not taxable at all. That is money you could have kept in your pocket.
In Australia, there are certain types of income that the ATO does not require you to pay tax on. These amounts generally fall into three categories:
Exempt income – Completely tax-free, but sometimes still reportable for other calculations.
Non-assessable, non-exempt income – Not taxed and doesn’t impact your tax losses.
Other non-taxable amounts – Personal gifts, certain prizes, and child support payments.
Exempt Income
Exempt income is money you receive that you don’t have to pay tax on. However, you may still need to report it because it can impact things like tax offsets or deductions for past losses. Here are some common types of exempt income:
Certain Australian Government pensions and allowances, including:
- Disability support pension (if you’re under the age-pension age)
- Invalidity service pension for veterans under the age-pension age
- Carer allowance
- Child care subsidy
Australian Defence Force and Federal Police overseas pay—certain allowances paid while serving overseas may be tax-free.
Education payments and grants, such as:
- Allowances for students under 16
- Commonwealth secondary education assistance
- Some scholarships, bursaries, and grants
Insurance lump sum payments, such as:
- Payouts from mortgage protection insurance
- Lump sums received for terminal illness or workplace injury (as long as you’re the original policyholder)
Even though you don’t pay tax on these amounts, they might still need to be reported. Why? Because the ATO uses them for calculations that could impact deductions and benefits.
Non-Assessable, Non-Exempt Income
This type of income is not taxed, and it doesn’t affect any tax losses you may be carrying forward. That means you don’t need to worry about it reducing future deductions. Some common examples include:
Tax-free portion of an employment termination payment – If you’ve been made redundant or took an early retirement package, the tax-free component of your payout falls into this category.
Super co-contributions – If the government contributes to your super under the co-contribution scheme, you don’t need to include this in your tax return.
Certain disaster payments and grants – Payments made for emergencies (like bushfire relief) are usually not taxable.
You can safely leave these out of your tax return without worrying about compliance issues.
Other Non-Taxable Amounts: Gifts, Prizes, and Child Support
Think about all the times you’ve received money as a gift. Maybe it was a generous birthday present or prize money from lotteries. The good news? These amounts aren’t considered taxable income, provided they fall under personal circumstances rather than business dealings.
Cash gifts from family and friends – If your grandma slips you a $500 gift, that’s yours to keep—tax-free.
Lottery winnings and prize money – Scored big in a lottery, raffle, or game show? Unless you’re making a living from entering competitions, these winnings are yours to keep, tax-free.
Child support and spousal maintenance – Any payments you receive for child support or maintenance are not considered taxable income.
Conclusion
Not all money you receive is taxable, but many people mistakenly report amounts they don’t need to. By knowing what’s exempt, non-assessable, or otherwise non-taxable, you can avoid overpaying and keep more in your pocket.
Before lodging your tax return, double-check—are you reporting more than you have to? A little extra awareness now could save you money and unnecessary stress later.
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