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 that is not subject to income averaging - your taxable non-professional income. The total, called your other income, is taxed at normal rates.
Step 2
Subtract 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 Infoline on 13 28 66.
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 $5,100.00. It would have been $7,860.00 – 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) |
$33,000.00 |
|
Deductions |
(b) |
$3,000.00 |
|
TPI |
(a) − (b) = $33,000 − $3,000 |
(c) |
$30,000.00 |
Kevin shows this amount at Z item 22 on his tax return and, if he has not already included the amount at item 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
= $9,000 (d)
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 (e)
Other income
= (d) + (e)
= $6,250 + $10,000
= $16,250 (f)
Tax on other income above at ordinary rates
= $1,537.50 (g)
Above-average special professional income
= (c) − (d)
= $30,000 − $6,250
= $23,750 (h)
Tax on [other income plus one-fifth of above-average special professional income]
= tax on [(f) + 1/5 (h)]
= tax on $21,000
= $2,250 (i)
Tax on above-average special professional income
= [(i) − (g)] × 5
= ($2,250.00 − $1,537.50) × 5
= $3,562.50 (j)
Kevin's total tax
= (g) + (j)
= $1,537.50 + $3,562.50
= $5,100 (k)