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What is income tax?


Income tax is payable by individuals, companies and various other types of entities. Doing your own tax return might be straightforward for individuals with minimal assets and simple income streams. However, for persons who have investments and receive income from a diverse range of sources, seeking the expertise of a Sydney Public Accountant or Sydney accountant can be the difference between hundreds or thousands of dollars of savings in tax. For companies, seeking advice from a Sydney Public Accountant or Sydney accountant is crucial.

In relation to income tax returns, there are two fundamental formulae to keep in mind. The first allows you to determine your taxable income for in any given year:

Taxable Income = Total Assessable Income – Total Deductions

Your “assessable income” can include things like your salary, interest earned on savings and profit from investment properties. “Deductions” might include things like expenses incurred in the course of your employment and losses and expenses involved with maintaining an investment property. Most important to tax payers, the law accommodates for a whole range of tax deductions. An accountant can help you identify whether any of your expenses can be properly categorized as a tax deduction and therefore reduce your taxable income.

The second formula allows you to determine how much income tax you will be liable for in any given year:

Income Tax = (Taxable Income x Rate) - Tax Offsets

“Rate” refers to the marginal tax rate which, for Australian individual residents in the 2011-2012 financial year is:

Taxable income

Tax on this income

0 - $6,000

Nil

$6,001 - $37,000

15c for each $1 over $6,000

$37,001 - $80,000

$4,650 plus 30c for each $1 over $37,000

$80,001 - $180,000

$17,550 plus 37c for each $1 over $80,000

$180,001 and over

$54,550 plus 45c for each $1 over $180,000

 

Note that the above rates do not include the Medicare levy and flood levy.

It is important to note that different concessions and exemptions can apply. 

 

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