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, 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 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 four 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.
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 |
(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 |
(h) |
$23,750 |
Tax on [other income plus one-fifth of above-average special professional income] |
(i) |
$2,680 |
Tax on above-average special professional income |
(j) |
$4,687.50 |
Kevin's total tax = (g) + (j) = 1,742.50 + 4,687.50 |
(k) |
$6,430 |
End of example