1. FM3 - Taxation

2. Basic concepts: Calculates deductions and taxable income
Calculates Medicare Levy
Can use a tax table to find PAYG tax
Can calculate GST and find the GST given the sale price
Can create graphs for different tax rates

3. Taxable Income
Taxable income is calculated using total income and allowable deductions. Total income includes income from all sources throughout the year. These may include wages and salaries, bonuses, interest earned, commissions and allowances. The total income may be subject to deductions that reduce the amount used to calculate the tax payable. Tax deductions may include tools used for work, safety equipment, self-education expenses, union fees, donations over $2, car travel expenses, uniforms and their cleaning, and tax agent fees. Which of these deductions are allowable will depend on the profession.

4. Amita uses the following information to calculate her taxable income: wages $35 980, interest $569 (joint account), bonus $200, cost of uniforms $140, tax agent fee $80, use of car $298. Calculate her taxable income.

8. Step it up…

9. Medicare Levy
An extra tax that may be payable is the Medicare levy. Medicare is the public hospital medical system available without charge for Australians. The Medicare levy is currently calculated at 2% of taxable income. In 2016–17 you do not have to pay the Medicare levy if your taxable income is equal to or less than $21,655 ($34,244 for seniors and pensioners entitled to the seniors and pensioners tax offset). You will pay only part of the Medicare levy if your taxable income is between $21,655 and $27,068 and you pay the full levy if you earn $27,069. You have to pay approximately 10 cents in the dollar for each dollar in excess of $21655 until you reach $27069 (no exact figure has been released online). Calculate the Medicare levy payable on a taxable income of $
Income
Less than $21,655 $0
Between $21,655 and $27,068
$0.10 per dollar earned over $21,655
$ or above
2% of income
Medicare levy = 2% of taxable income
= 2 ÷ 100 × $35 908
= $718.16

10. Income
Less than $21,655 $0
Between $21,655 and $27,068
$0.10 per dollar earned over $21,655
$ or above
2% of income 8

11. Create the spreadsheet below
Create the spreadsheet below. Formulas have been entered in cells B5 to B10.
a Cell B5 has a formula (=A5*0.02) that calculates the Medicare levy. The rate of the Medicare levy is 2% of the taxable income. Enter this formula.
b The formulas in cells B6 to B10 are similar to the formula in B5. Fill down the
contents of B6 to B9 using the formula in cell B5.
c Use the spreadsheet to calculate the Medicare levy payable on a taxable income of:
i $ ii $ iii $49 740
d Pretend the Australian Government has decided to decrease the Medicare levy from 2% to 1.75% of the taxable income. Modify the spreadsheet.

12. Step it up… 2% 2%

13. Tax Payable (PAYG)
Tax is normally taken out of your income before you see it…but this is how it is calculated:

14. Use the tax table to calculate the tax payable on these incomes.
a $ b $ c $
a) $ is in the third row of the table.
Excess = $ − $37 000
= $16 251
Tax = $ × $16 251
= $
b) $ is in the second row of the table.
Excess = $ − $18 200
= $8584
Tax = 0.19 × $8584
= $
c) $ is in the fourth row of the table.
Excess = $ − $87 000
= $18 631
Tax = $ × $18 631
= $

16. $87 000)

18. Step it up…

19. GST (Goods and Services Tax)
The Australian Government collects a tax when people purchase goods and services. The tax is called the GST (Goods and Services Tax) and is 10% of the purchase price of the item. There are exceptions for basic food items and some medical expenses.
• To calculate the GST, find 10% of the pre-tax price.
• To calculate the total cost of an item, add the GST to the pre-tax price. Alternatively, find 110% of the pre-tax price.
• To calculate the pre-tax price given the total cost of an item, divide the total cost by 110%.

22. Tax Graphs
The amount of tax payable may be found using graphs. Using a graph to find tax is an example of mathematical modelling. A graph can also be used to find the taxable income if we know the amount of tax to be paid. There are a number of different types of graphs depending on the tax system.
This is a graph of a fixed rate tax system.
Use the graph to find:
a the tax payable on an income of $70 000
b the taxable income with tax of $

25. Step it up…
Chelsea has a small office in her home to run a business. The office in her home is 8% of the area of the house. The tax office allows 8% of the household bills as a tax deduction if it is a work-related expense. Calculate the allowable tax deduction for the financial year on the following household bills.
Electricity bill of $360 per quarter.
Telephone bill of $70 per month.
House insurance of $684 per year.
Rent of $440 per fortnight.
Ashton owns a small business and is entitled to the following tax deductions: union fees of $484, donations of $720, equipment cost of $860, car expenses of $1455 and software. Ashton’s total allowable tax deduction was $3719. How much did Ashton claim for software?
a) $115.20
b) $67.20
c) $54.72
d) $915.20
Ashton claimed $200 for software.

26. Step it up…
Oscar is a tradesman who receives a yearly gross salary of $ He also works part-time at TAFE for a wage of $135 per week. Oscar received $360 in share dividends.
What is Oscar’s gross annual income?
Oscar is entitled to a tax deduction for travelling between his two places of employment. Oscar has calculated that he travelled 340 km and the allowable deduction is 69 c/km. What is Oscar’s travel expense?
In addition to the above travel expenses Oscar is entitled to the following tax deductions: $530 for union fees, tax agent fee of $180, charity donations of $280 and equipment costs of $750. Calculate Oscar’s total allowable deductions.
What is Oscar’s taxable income?

27. Step it up…
Emma received an income of $ from her main job for the last financial year and paid $ in tax instalments. In addition, Emma earned an income of $6890 from a part-time job and paid tax of $2980.
How much tax has Emma paid for the year?
Calculate the amount of tax payable by Emma.
Will Emma receive a refund or will he have to pay more tax? Justify your answer.
What percentage of his income is paid as tax? Answer correct to one decimal place.
Alexander earns an income of $ He also has $ in a bank account which earns interest at a rate of 8.5% p.a. Alexander has to pay tax on his total income.
How much interest does Alexander earn from his bank account this year?
Calculate the tax payable.