1. The document explains how to calculate personal income tax in Australia. It covers calculating taxable income by subtracting allowable deductions from assessable income, then using the tax bracket table to determine bracket tax. 2. It also explains calculating the Medicare levy, HECS repayments, and totaling tax by adding bracket tax, Medicare levy, and HECS, then subtracting any rebates or offsets. 3. Several examples are provided to demonstrate calculating tax for individuals with different income and deduction scenarios.

1. GENC3003Personal Financial Planning Andrew Hingstonandrew.hingston@unsw.edu.au Unit 8: Calculating taxation

2. 2 How do I calculate my tax? Calculate Taxable Income Calculate Bracket Income Tax payable Calculate Medicare Levy Calculate HECS payable Calculate total tax rebates and offsets Total tax = 2 + 3 + 4 - 5

3. 3 How do I calculate my tax?1. Calculate Taxable Income Taxable Income = Assessable Income – Allowable Deductions Tax is calculated based on your Taxable Income … NOT your total assessable income. Assessable Income is your total income from salary, interest and your investments. Allowable Deductions are any tax deductions that you can claim from expenses incurred while generating income.

4. 4 How do I calculate my tax?2. Calculate Bracket Income Tax Locate your taxable income in column A Move along that row to the right ... add B to C Eg. If Taxable Income = $68,000 then this is row 3:Tax = 4,650 + (68,000 – 37,000) x 0.30Tax = 4,650 + 9,300Tax = 13,950

5. 5 Example 1 James Graduate is a graduate accountant. He has a gross salary of $41,500. He earns $500 per year in interest. He has allowable deductions of $400 from a work-related training course that he paid himself. What is his taxable income? What is his bracket income tax?

6. 6 Solution 1 Assessable Income = $42,000 Allowable Deductions = $400 Taxable Income = $41,600 Taxable Income is in third bracket: = tax on previous brackets + this bracket= $4650 + 0.30 x (41,600 - 37,000)= $4650 + $1380= $6030

7. 7 How do I calculate my tax?3. Calculate Medicare Levy Calculate additional Medicare Levy: Add Medicare Levy Surcharge of 1% if you don’t have private hospital insurance cover AND:

8. 8 How do I calculate my tax?4. Calculate HECS payable HECS repayments are based on your HRI HRI = taxable incomeplus net rental lossesplus reportable fringe benefitsplus exempt foreign employment income No HECS is payable below HRI of $44,912 8% HECS is payable above HRI of $83,408 Repayment rate increases from 4% to 8% between these two amounts. See last page of course outline for table of rates.

9. 9 How do I calculate my tax?5. Rebates and offsets A tax rebate of $100 means you pay $100 less tax. A tax rebate of $100 is better than a tax deduction of $100 Tax deduction of $100 decreases taxable income by $100 If marginal rate of tax is 30% … then you only pay $30 less in tax The most common tax rebate is from “franking credits” from dividends on shares This is a rebate on the company tax that companies have already paid on their profits (more on that later).

10. 10 How do I calculate my tax?6. Total Tax Total tax payable = Income tax based on bracket table Plus Medicare Levy (and surcharge if applicable) Plus HECS repayments Less total Rebates and Offsets Your employer takes this amount out of your gross salary and only pays you the net amount. It is called Pay As You Go tax (PAYG) The employer then pays this PAYG tax to the ATO when they submit their BAS (quarterly).

11. 11 Example 2 John Graduate is a graduate engineer. He has a gross salary of $100,000 (excluding super). He has allowable deductions of $10,000 from an engineering course that he paid for himself. He has a HECS debt of $50,000. He has private extras cover only (not hospital). What is his total income tax?

12. 12 Solution 2 Assessable Income = $100,000 Allowable Deductions = $10,000 Taxable Income = $90,000 Medicare Levy + surcharge= 2.5% x $90,000 = $2250 HECS payable at 8% = 8% x $90,000 = $7200 Taxable Income is in fourth bracket: = previous brackets + this bracket= $17,550 + 0.37(90,000 – 80,000)= $21,250 Total tax = $2250 + $7200 + $21,250 = $30,700

13. 13 Example 3 John Graduate is now married with no children. His gross salary is $95,000 (excluding super).His wife’s salary is $60,000 (excluding super). He has $1000 assessable income from share dividends. He has $300 tax rebates from shares franking credits. He has work-related deductions of $2000. He has private hospital cover but no extras cover. He still has $15000 in HECS debt What is John’s total income tax?

14. 14 Solution 3 Assessable Income = $96,000 Allowable Deductions = $2000 Taxable Income = $94,000 Medicare Levy = 1.5% x $94,000 = $1410 HECS repayment = 8% x $94,000 = $7520 Taxable Income is in 4th bracket so Bracket Tax= = $17,550 + 0.37(94,000 – 80,000) = $22,730 Total Tax = Bracket + ML + HECS – Rebates = 22,730 + 1410 + 7520 – 300 = $31,360