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