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• ## How to work out total tax payable with income averaging

Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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You do not need to work out your total tax payable with income averaging. The Tax Office 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, and
• 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, phone the Business Tax Infoline on 13 28 66 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 four years was \$6,250.

Kevin's tax payable - before any Medicare levy is worked out - is \$5,780. It would have been \$8,172 - the tax on \$40,000 - if averaging had not been applied.

The following steps show you how Kevin's tax has been worked out.

 Assessable professional income (a) \$33,000 Deductions (b) \$3,000 TPI = (a) - (b) =\$33,000 - \$3,000 (c) \$30,000

Kevin shows this amount at Z item 22 on his tax return, and, if he has not already included the amount at items 1, 2, 12, 13 or 14, also at V item 22 on his tax return.

 ATPI = one-quarter of TPI for the preceding four years - not including this income year (d) \$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 (e) \$10,000 Other income =(d) + (e) =\$6,250 + \$10,000 (f) \$16,250 Tax on other income above at ordinary rates (g) \$1,742.50 Above-average special professional income =(c) - (d) =\$30,000 - \$6,250 (h) \$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 (i) \$2,550 Tax on above-average special professional income =[(i) - (g)] x 5 =[\$2,550 - \$1,742.50] x 5 (j) \$4,037.50 Kevin's total tax =(g) + (j) =\$1,742.50 + \$4,037.50 (k) \$5,780
Last modified: 01 Dec 2006QC 27534