Introduction Income Tax

Key Concepts Income All income that needs to be declared for tax purposes. Deductions Reduces assessable income for costs incurred in earning that income. Taxable Income Assessable Income less allowable deductions. Used to calculate the prime tax.

Step 1 Calculation of Taxable Income Assessable income Less Allowable Deductions Taxable Income Equals

What is ASSESSABLE INCOME? The tax act does not define “income” If it is not income it can't be subject to income tax. To determine if a receipt is income, must rely on case law

W What is ASSESSABLE INCOME? A receipt (usually of money) is likely to be included as assessable income if: It resulted from personal exertion There is an element of regularity about it It results from an investment

E Examples of Assessable Income Salary or wages Allowances, earnings, tips Lump sum payments Sales Interest Income Commission Income

Step 1 Calculation of Taxable Income Assessable income Less Allowable Deductions Taxable Income Equals

What are Allowable Deductions? Generally - costs incurred in the process of generating assessable income or carrying on a business. These are similar (but not always the same) as accounting expenses

What are Allowable Deductions Examples of general expenses Work-related car expenses Work-related training expenses Office rent Telephone Electricity

What are Allowable Deductions? Certain expenses which appear to be non-deductible under the general provisions may be allowable under specific provisions. Examples of specific deductions Gifts to approved charities Cost of Taxation advice

SUBSTANTIATION of Allowable Deductions i.e. proof Receipts or other documentary evidence to support work-related expenses where the total claim for these is above $300. This evidence must be kept for five years after lodgement of the tax return.

Step 1 Calculation of Taxable Income Assessable income Less Allowable Deductions Taxable Income Equals

CALCULATING TAX PAYABLE (individuals/business) From step 1 Tax on taxable Income(income tax) Less Tax Offsets Plus Medicare Levy & HELP Less PAYG

Key concepts Tax on Taxable Income for an Individual Tax Offsets HELP Based on Taxable Income after taking into account the tax-free threshold using the current rates of personal tax Tax Offsets Tax offsets can reduce the amount of tax payable. Eg Low income offset (<$30,000 pa) HELP Higher Education Loan Programme ( HELP ) debts.

Medicare Levy The Medicare scheme gives Australian residents access to health care. Normally, your Medicare levy is calculated at 1.5 % of your taxable income, however… A reduced Medicare levy or no levy may be available to taxpayers on low incomes.

Medicare Levy Surcharge (MLS) Individuals and families on incomes above the MLS thresholds, that do not have private patient hospital cover pay MLS for any period that they did not have this cover. We calculate MLS at the rate of (see Notes) of your taxable income. The MLS is in addition to the 1.5% Medicare levy. http://www.ato.gov.au/individuals/content.asp?doc=/content/7128.htm&page=4&H4

Tax offsets Examples Medical expenses rebate. Tax Offsets reduce the amount of tax payable . Tax Offsets are mostly only available to individual taxpayers. Only ‘refundable’ tax offsets can result in a tax refund Examples Medical expenses rebate. Private health insurance offset.. Low income offset.

Step 2 CALCULATING TAX PAYABLE (individuals) From step 1 Tax on taxable Income Less Tax Offsets Plus Medicare Levy & HELP Equals Net Tax Payable

Income Tax Year The Australian income tax year is from 1 July – 30 June. An individual has until 31 October to lodge their tax return unless registered with a Tax Agent

Taxable income Tax rates 0=$18,000 nil $18,201-$37,000 19c for each $ Over $18,200 $37,001-$80,000 $3572 plus 32.5c for each $1 over $37,000 $80,001-$180,000 $17,547 plus 37c for each $1 over $80,000 $180,001+ $54,547 plus 47c* for each $1 over $180,000 *Includes Budget Repair levy