Income Tax Law Calculation of tax payable PDF

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Calculation of Tax Payable...

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Income Tax Law Calculation of tax payable The formula for calculating a taxpayer’s net tax payable is: Income tax on taxable income

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Less Non-refundable tax offsets

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Add: Medicare Levy

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Add: Medicare surcharge

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Add: Help repayment

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Less refundable tax offsets

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Net tax payable /refundable

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Non-refundable tax offsets are limited to the income tax. Due to this the lowincome tax offset (LITO) and/or the low and middle income earners tax offset (LAMITO) should be set out immediately after the income tax calculation, in case they need to be limited to the income tax calculated.

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Help repayment A taxpayer who has incurred a higher education loan is required to repay the loan through the tax system when their repayment reaches a certain level. Repayment income is made up of the following components: The rate of repayment is determined by the following table:

20-2021 HELP repayment thresholds and rates 2020-2021 Repayment income

Repayment % rate

Below $46,620

Nil

$46,620 - $53,826

1.0%

$53,827 - $57,055

2.0%

$57,056 - $60,479

2.5%

$60,480 - $64,108

3.0%

$64,109 - $67,954

3.5%

$67,955 - $72,031

4.0%

$72,032 - $76,354

4.5%

$76,355 - $80,935

5.0%

$80,936 - $85,792

5.5%

$85,793 - $90,939

6.0%

$90,940 - $96,396

6.5%

$96,397 - $102,179

7.0%

$102,180 - $108,309

7.5%

$108,310 - $114,707

8.0%

$114,708 - $121,698

8.5%

$121,699 - $128,999

9.0%

$129,000 - $136,739

9.5%

$136,740 and above

10.0%

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Medicare levy surcharge Medicare levy surcharge (MLS) is a tax payable by individuals and families who: • •

do not have an appropriate level of private patient hospital cover and have income for surcharge purposes above MLS thresholds.

An appropriate level of cover is provided by an insurance policy issued by a registered health insurer for hospital treatment provided in an Australian hospital. • •

for a single person, it must have an excess of $500 or less, or $1,000 or less for a policy covering more than one person.

Income for surcharge purposes is calculated as: Taxable income + reportable fringe benefits + reportable superannuation contributions + net investment losses. If the taxpayer’s income for surcharge purposes is above the relevant thresholds and you do not have adequate private health insurance, the taxpayer will be liable for the surcharge. The thresholds for the 2020/21 income year are as follows:

Unchanged

Tier 1

Tier 2

Tier 3

Singles

$90,000 or less

$90001$105,000

$105,001 $140,000

$140,001 or more

Families

$180,000 or less

$180,001 $210,000

$210,001 $280,000

$280,001 or more

Medicare levy surcharge rate

0%

1%

1.25%

1.5%

The family income thresholds are increased by $1,500 for each dependent child after the first. If you acquire private patient hospital insurance midway through the tax year and your income was above the MLS threshold for the year, MLS is payable for the number of days you were not covered by the policy. 3

You won't become liable for MLS if your and your spouse's combined income for MLS purposes was above the threshold but your own income did not exceed the Medicare levy low income threshold of $22,801 (for 2020/21). In this situation, only your spouse will pay the MLS.

Calculation of the surcharge The Medicare levy surcharge is calculated by the relevant rate * taxable income + reportable fringe benefits. Example: Sally Weston is single and does not have private hospital cover. She received the following amounts:

$ Salary

80,000

Reportable Fringe benefits

10,500

Reportable superannuation

15,000

Calculate the Medicare levy surcharge. Income for surcharge purposes 80,000 + 10,500+15,000=$105,500 This amount falls into Tier 2 income of $105,001 to $140,000 and the MLS rate is applied at 1.25% Therefore, MLS payable is: $80,000+10,500 x 1.25% = $1,131.25

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Tax offsets Tax offsets or rebates reduce the income tax payable of a taxpayer. Taxpayer’s will be entitled to various tax offsets depending on their circumstances.

Low and middle income tax offset If a taxpayer’s taxable income is less than $126,000, you will get some of the low and middle income tax offset. The maximum offset is $1,080 per annum. The base amount is $255 per annum. The amount of the offset you are entitled to will depend on your individual circumstances, such as your income level and how much tax you have paid throughout the year. In other words, you might not be entitled to the full $1,080. You are not required to do anything to claim the low and middle income tax offset, ATO will work out how much you are entitled to and include it in your tax return. The new low and middle income tax offset is available for the 2018–19, 2019–20, 2020–21 and 2021–22 income years and is in addition to the low income tax offset. Table 5 tax offset rates.

Taxable Income ≤ $37,000

Tax offset Maximum rebate of $700

$37,001-$45000 $700- [(TI-37,000)*0.05] 45,001-66,666

$325-[(TI-45000)*0.015]

≥ $66,667

No tax offset

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Question1 The tax-free threshold is an amount of money that the Government has declared to be tax free. The person earning below the declared amount do not need to pay the tax. As per the tax rates of 2021-22, if you are earning below $18,200 in that tax period, you do not need to pay any tax. So, the earning of $0 - $18,200 is taxfree threshold.

Question 2 From the following information calculate the taxable income of a resident wage earner for the year ended 30 June 2021 Income Gross Wages

$ 140,000

Expenditure (substantiated) Protective clothing

350

Laundry protective clothing

150

Gift to charities

250

Question 3 (a)Calculate the income tax and medicare levy in question 2. (b) If PAYG of $35,000 was withheld, what would be the net tax payable /refundable?

Question 4 Explain what is meant by the term, marginal rate of tax. Illustrate your answer by using the example of a person who earnt $10,000 in overtime. The overtime means that she has a taxable income of $125,000 instead of $115,000 in the 2021 tax year. Marginal rate of tax is the tax rate you pay on an additional dollar of income. It is the amount of additional tax paid for every additional dollar earned as an income. Term is the period of tax year. It is 1st July to 30th June. For example, if you have taxable income of $115,000. You will be paying income tax of $27,492 but once your income exceeds $120,000 you will be paying $0.37 cents for every dollar over $120,000. Hence when your taxable income is 6

$125,000, marginal tax rate is 37% for every dollar over $120,000. Your income tax when you earn $125,000 is $31,317.

Question 5 Calculate the net tax payable or refundable for the year ended 30 June 2021 for each of the following taxpayers. Each taxpayer is single with no dependants and no private hospital insurance.

Name

Taxable Income

Reportable fringe Benefits

Reportable PAYG super TAX contributions withheld

HELP liability

Philip

$60,000

$2,000

$4,000

$11,900

$14,000

Monica

$82,000

$6,600

$4,000

$25,200

$8,000

Question 6: Tax payable or refundable During the 2020/21 tax year, Kingsley Waugh had a taxable income of $83,000 and reportable fringe benefits of $7340. PAYG tax withheld was $19,000. Kingsley also has a HELP liability of $4,100. Kingsley has no private health insurance. Calculate the net tax payable by or refundable to Kingsley.

Question 7 Net tax payable or refundable Lia and Larry (both aged 48 years old) are resident married taxpayers. During the 2019/20 tax year, Lia derived a taxable income of $155,000 and her PAYG payment summary showed reportable fringe benefits of $5,000 and PAYG deductions of $50,000. Larry had a taxable income of $35,000 (PAYG 3,500). They have 3 dependent children. Lia and Larry have no private hospital cover. Lia has a HELP liability of $10,000 from studying at university. Calculate for net tax payable or refundable for Lia & Larry for the 2020/21 tax year.

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