ato logo
Search Suggestion:

How to work out total tax payable with income averaging

Last updated 29 June 2002

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 get 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 5.

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 total 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 is 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

Amount ($)

Assessable professional income

33,000

Deductions

3,000

TPI = (a) − (b)

= $33 000 − $3000

Kevin shows this amount at Z and V item 22 on his tax return

 

30,000

ATPI

= one-quarter of TPI for the preceding 4 years – not including this income year

6,250

Taxable non-professional income

= amount of total taxable income at $ on his tax return minus the amount shown at Z item 22 on his tax return

= $40 000 − $30 000

10,000

Other income

= (d) + (e)

= $6250 + $10 000

16,250

Tax on other income above at ordinary rates

1,742.50

Above-average special professional income

= (c) − (d)

= $30 000 − $6250

23,750

Tax on [other income plus one-fifth of above-average special professional income]

= tax on [(f) + (1 ÷5) (h)]

= tax on $21 000

2,680

Tax on above-average special professional income

= [(i) − (g)] × 5

= [2680 − 1742.50] × 5

4,687.50

Kevin's total tax

= (g) + (j)

= 1742.50 + 4687.50

6,430

 

End of example

QC93431