For information regarding income and expenditure, assets and liabilities, you are able to assess the overall financial position of their client.

The first step is to consider the client’s income from all sources, salary/wages, investments, etc. This is generally referred to as their ‘assessable income’.

For example:

Imputation credits are tax credits attached to shares whose companies have paid tax on their profits. While these are not actually received, they must be included as income and applied later as a tax credit.

 Deductions are then calculated:

 

Tax is calculated using the individual marginal rates published by the Australian Taxation Office (ATO) each financial year. You can find these on the Australian Taxation Office website at www.ato.gov.au. The following table uses tax rates for 2015/16 and you should consult the ATO website for current rates. The table shows the tax brackets into which levels of assessable income fall. The rate of tax within these brackets is called the ‘marginal rate of tax’. The table shows that the tax bracket $0 – $18,200 has a zero marginal rate of tax. Our example has an assessable income of $74,430 and the table indicates that this falls into the 32.5c  percent marginal tax rate bracket.  Note that tax payable is calculated on taxable income, not assessable income.

Based on the ATO figures, tax payable in our example will be calculated as follows:

 

Assessable income $74,430
less Deductions $10,122
Figure on which income tax is payable $64,308

 

Tax payable on figures over $37,000 is calculated as $3,572 plus 32.5 percent of sums over $37,000 and up to $80,000.

This works out as follows:

$3,572
$64,308 – $37,000 = $27,308
$27,308 x 32.5% $8,875 (rounded)
Total tax due before tax credits $12,447
less Imputation credits $2,230
$10,217
Medicare levy payable at 2.0% of taxable
income $64,308 x 2.0% = $1,286 (rounded)
Total tax due $11,503

 

Once the client’s tax liability is calculated, their disposable income can be understood. This is real income available to the client, ignoring deductions such as imputation credits, which the client does not receive and taking account of their actual expenses.

 

Salary $55,000
Rental Income $10,000
Term deposit interest $2,000
Share dividends $5,200
Total $72,200
less:
Tax $11,577
Expenses $41,700
Disposable income: $18,923

 

 

Activity

 

  • From your own information calculate your assessable income, your taxable income, your spendable income and your disposable income.

 

 

Unless the you are also a qualified taxation advisor, clients should be referred to their taxation advisor for calculations regarding their tax liability.