You do not need to work out your total tax payable with income averaging. The ATO will work it out from the amount at Z item 22 on your tax return. If you want to work it out for yourself, follow these steps.
Step 1
Add your ATPI to your taxable income which is not subject to income averaging-your taxable non-professional income. The total, called your other income, is taxed at normal rates.
Step 2
Take away your ATPI from this year's TPI to give you your above-average special professional income. To work out the tax payable on this income:
- to your other income add one-fifth of your above-average special professional income
- work out the tax payable on this amount
- subtract the tax payable on your other income
- multiply the result by five.
Step 3
Add the tax on your other income and the tax on your above-average special professional income. The result is your total tax payable.
For more information, ring the Personal Tax Infoline on 13 28 61 for the cost of a local call.
Example: Working out tax payable with income averaging
Kevin has a taxable income of $40,000, including assessable professional income of $33,000. He has deductions of $3,000 that reasonably relate to his assessable professional income-this amount does not include gifts-and no other deductions. His average TPI over the last 4 years was $6,250.
Kevin's tax payable-before any Medicare levy has been worked out-is $6,430. It would have been $8,380-the tax on $40,000-if averaging had not been applied.
The following steps show you how Kevin's tax has been worked out.
Step 1 |
Assessable professional income |
a |
$33,000 |
Step 2 |
Deductions |
b |
$3,000 |
Step 3 |
Taxable professional income Kevin shows this amount at Z and at V item 22 on his tax return |
c |
$30,000 |
Step 4 |
Average taxable professional income = 1/4 of TPI for the preceding 4 years-not including this income year |
d |
$6,250 |
Step 5 |
Taxable non-professional income |
e |
$10,000 |
Step 6 |
Other income |
f |
$16,250 |
Step 7 |
Tax on other income at step 6 at ordinary rates |
g |
$1,742.50 |
Step 8 |
Above-average special professional income |
h |
$23,750 |
Step 9 |
Tax on (other income plus 1/5 of above-average special professional income) |
i |
$2,680 |
Step 10 |
Tax on above-average special professional income |
j |
$4,687.50 |
Step 11 |
Kevin's total tax |
k |
$6,430 |
End of example