Today I will share with you the income tax rates in Australia based on how much you earn and with a real life example of how you can calculate your tax for the year based on this data. Nice and simple, just the way the ATO don’t like to make it!

2011/2012 income tax rates

Taxable income:

• $0 to $6,000 = No tax to pay, yay
• $6,001 to $37,000 = 15cents for every dollar over $6,000
• $37,001 to $80,000 = $4,650 plus 30 cents for every dollar over $37,000
• $80,001 to $180,000 = $17,550 plus 37 cents for every dollar over $80,000
• $180,001 and over = $54,550 plus 45 cents for every dollar over $180,000

Example of how to calculate your individual income tax payable

Let’s say you earn $55,000 per year. Straight away you need to pay $4,650.

Now you need to pay 30 cents for every dollar over $37,000 as per the guidelines above.

This means you need to times 30 cents by $18,000 dollars. That means you owe another $5,400 in tax (0.30 x 18,000). Combine this with the $4,650 you owed from the start and a salary of $55,000 is taxed exactly $10,050.

Nice and simple and something you should get in the habit of knowing how to do in order to better understand the amount of tax you will be paying. If you pay more than this without earning more, you will get a refund. You can also talk with an accountant or research ways to claim deductions that are relevant to your work – this is a great way of offsetting your income by reducing it with deductions which ultimately means less tax and more refund.

The Carrot

More than one million extra Australians will not pay any income tax. I had to read that a couple of times before it really sunk in. An extra one million Australians will not be paying any tax by 2012. The reason for this is the massive increase to the tax-free threshold, from $6000 to $18, 200 in 2012 and $19, 400 in 2015. Also, as mentioned in the Courier Mail in their excellent piece on Sunday morning, families and pensioners will get extra ‘clean energy supplements’, which is estimated to work out to around $10.10 a week for the average family. Every taxpayer who earns below $80,000 a year will receive a tax cut in 2012.

The Stick

Cost of living is set to increase dramatically next year, by 0.7%. Families will find themselves paying, on average, an extra $9.90 a week in bills, with a lot of the rise to be found in the cost of groceries. Compounding this, electricity bills are set to hit new heights at an extra $3.30 a week and gas costs by an estimated $1.50 a week.

What The Carbon Price Should Do

In an ideal world, the carbon price is set to achieve a lot. The government estimates it will reduce carbon pollution by 158m tonnes by 2020, the equivalent of taking 45 millions cars off the road. The carbon price covers around 60% of pollution, with the tax not applying to agriculture, petrol or light on-road vehicles for economic reasons. Farmers will not have to pay the tax, and small businesses will get a tax concession. The mines most affected by the tax, and people who work at them, are covered under a $1.3 billion Coal Sector Jobs Package, with a $300 million nod to the steel industry as well. Small grants will be available to community-based energy initiatives, with some money being set aside for renewables and investing in new technologies.

Enough With The Numbers, What’s The Reality?

We cannot control how our world might move. While we get to validate the decisions of a government once every three years, we can’t individually control the movements of tax cuts, carbon pricing, stock markets and sector booms. All we can control is our response to these things. Times are going to get a bit tighter. Electricity and gas costs are going to spike, and food prices are going to get worse. It would be helpful to start adjusting now- why not work those extra prices into your budget and set them aside as a savings measure? That way, when the changes come into effect, your household budget is already suited to them. Start thinking now about how you can improve your energy efficiency, especially when it comes to your heating and cooling options. It’s hard to see how you could go wrong with investment, if you should have the capital, in renewable energy. It is, after all, an upfront investment in our future.

Spend, Not Invest

Investing that money might seem like a drop in the pond of monetary need. That said, with compound interest and time, wondrous things can come of a bit of investment, even if the initial amount seems somewhat paltry.

Not Paying Down Debt

How often are you given a leg-up in terms of money? Not frequently. If you’re looking to take a chunk out of your debt, then your tax refund is the perfect way to get your teeth into it. You’;; save money on interest and really knock a bit of a dent into the debt as well, making the repayments over the rest of the year easier to motivate.

Extra Credit

Johnson suggests that, should you spend the refund, it could be worth thinking about investing it in something that will earn you a tax credit the following year. Solar panels are the obvious example- using the money to purchase an item that gets partially refunded (as well as saves you immense amounts of money off your energy costs) is certainly a worthy means of distributing your refund.

Failing To Create A Memory

If you want to spend your refund- and I’m not as agin the whole idea as Ms. Johnson, due to a dire need for a computer- spend it on something worthwhile. The worst of all feelings is to piss away a good amount of money, when you could have spent it on doing something you’ve always wanted to do. Book a plane ticket, buy a new couch, use the money for something that will stay worthy until the next tax refund comes around.

Not Investing In Yourself

Using the tax rebate to fund a class or work experience project is as much of an investment as putting aside the money and letting compound interest do the rest. Eventually, that class might be the difference when you try and get a new job or ask for a raise, and it will pay for itself a hundred times over.

A Deposit On Debt

Using your tax refund as a downpayment on debt is probably not the wisest move known to man. Yes, it might be hard to get a loan on the car, but refunds are a great opportunity to clear debt, not consolidate it. Be especially wary of using it on something that won’t increase in value.

Sustaining The Unsustainable

If you’re hanging out for the tax refund just to get by, now might be a good time to think about how you can restructure your general finances to make ends meet in an easier manner. The once-a-year windfall shouldn’t be the only thing keeping you afloat and, if it is, time to look at your general financial health.

Contribute

The government will match your voluntary super contributions of up to $1000 should you earn less than $61, 290 a year- as mentioned in yesterday’s article. Here’s the thing- while direct deposits on a weekly basis are the most painless way of taking charge of that offer, you can still contribute a lump sum and maximise your super. Even if it’s not a huge amount, put together a little bit of cash and contribute it. Your retirement will thank you.

Know Your Refunds

What refunds are you eligible for? For example, the education refund introduced in 2008 could make all the difference if you have school-aged children. Research what falls under the criteria for refunds- things like laptops, internet connection, textbooks. You’re eligible for $750 for primary school children and $1500 for high school kids. It’s certainly worthwhile checking what has changed in the year since you last did tax. Another example is that education expenses for tertiary students on Centrelink can now also be addressed, as evidenced by the backpay recently sent out by the ATO, so check out where you stand on new refunds as well.

Delay

If you’re going to owe money at tax time, some experts suggest using a registered tax agent to legitimately delay paying the tax- as it is essentially an interest-free loan should you have necessary expenditure. Yasser El-Ansary, from the Chartered Accountants of Australia suggests you can delay your tax until May the following year. This could allow you to also slowly set aside the required money and not have to take away from your savings schemes in the process. I would suggest the reverse is also true, if you’re getting a refund, go for gold and get it as soon as possible.

Negative Gearing

If you own a rental property, you are eligible to claim a 2.5% deduction for building costs or structural improvements to the property. Also, if you haven’t claimed the building allowance previously, you can claim it on this tax return. Better than a kick in the teeth, that’s for sure.

Tax Return

Lots of people prefer the tangible nature of pen and paper but the ATO’s E-Tax is a pretty super little program and one of which I am a great fan. It will enable you to feed in all your data- super, interest on bank accounts, Centrelink payments and has an extensive help section that makes the whole process much more simple. There’s a side menu if you know exactly what you need, or you can go through the whole thing step by step. It also tells you immediately what your tax will be or how much you can expect from a refund, and can be lodged online.

University student readers of this website may have received in the post a letter from the Tax Office. We all dread receiving correspondence from the ATO, but in this case the letter actually contained welcome news.

Some key excerpts from the letter are as follows:

‘A recent court decision means you can claim study expenses as a tax deduction’

‘As you may not have kept records of your expenses for [year of income], we will amend your assessments to include a deduction for study expenses of $550 for each year you are eligible.’

This is news we all like to hear!

Who wins?

To be eligible to receive the deduction, you must have:

• Received Youth Allowance to study full-time and declared it in your tax return
• Not claimed a deduction for study expenses in relation to your Youth Allowance income
• Paid tax in the 2007, 2008, 2009 or 2010 income years

Hence, this set of facts would apply to a large proportion of full-time students who work part-time to pay their way through University.

Why the change of heart?

The Tax Office is handing out free deductions as a result of its defeat in a landmark High Court tax case last November. In the Anstis case, a university student successfully argued that she should be able to claim deductions for study expenses against her Youth Allowance income.

In simple terms, the concept is that you would not be eligible to receive the Youth Allowance if you were not enrolled in full-time study at University. Therefore, expenditure incurred in keeping up with your studies and staying enrolled is deductible against that income.

Such expenditure includes:

• Textbooks
• Stationary and classroom supplies
• Laptop / computer depreciation
• Student administration fees
• Transport to and from university

What do I do?

Nothing! The ATO will automatically amend eligible returns for the 2007, 2008, 2009 and 2010 income years by inserting a standard deduction of $550 into your return (being $800 less a mandatory $250 reduction). This amount is the Tax Office’s determination of the average expenditure a student is likely to incur.

For further details

Read more at the ATO here.

However, it is worth paying attention to your mail during April and May to make sure that the ATO doesn’t forget about you. Administration errors are known to happen, and hence you should follow up this matter if you think you are eligible but have not received the benefit of the automatic deduction.

Furthermore, if you think that you have incurred study expenses in excess of $800 then you can call 1300 766 034 to opt out of the automatic deduction. You will then need to lodge a request for amendment to advise the Tax Office of your study deductions.

About The Author

Marc is a qualified Chartered Accountant and founding director of Solve Accounting. Marc has extensive knowledge in both the technical and practical aspects of taxation.

You can visit his website here or contact him here. Marc is interested in helping readers of Savings Guide with their tax preparations and returns so please feel free to get in touch for his services.

A Down Payment On A Fuel Efficient Car

With the automotive industry taking some severe knocks in recent years, the market is currently resplendent with budget-conscious and fuel-efficient cars. With the prices of petrol in Australia edging towards a terrifying $1.60 at the moment, a fuel-efficient car will be one of the big savings you’ll make over the coming years.

If you can put aside your tax return for a decent deposit, you’ll also have yourself significantly improved borrowing terms.

A Last Minute Vacation

According to Money Watch, recent research shows that vacations are one of the best ways to use money to boost happiness. Rather than whittling away your tax return this year, why not look at taking off for a couple of weeks? It’s low-season in Australia, so prices will be much cheaper and you’ll come back to the new financial year refreshed and ready to tackle your personal finances.

If you’ve been saving stringently all year, and denied yourself a summer holiday, maybe it’s time for a bit of r&r and if you can budget to within your tax refund, you won’t even damage your saving strategies.

New Laptop

It’s hard to come up with the couple of grand to buy a new laptop, even when yours seems to have jam in the disk drive and is held together by masking tape as mine is. Using your tax refund to buy a laptop straight out will save you from getting a loan to purchase the computer, and will also save you from having to spend significant amount of time at your local library because your computer has given up the ghost.

They are an essential of modern-day living, at least for people like me who freelance, and buying a new one is an investment in your professional life. Wait until a manufacturer has announced a new model, and then buy the one just before it as they will have slashed the prices.

Take Care Of Your Lawns

According to real estate research, it’s the first and last impressions of a home that matter the most. As in, your front and backyard views. So if you’re planning to sell your house in 2011, you may well make your task easier by spending your tax return on a bit of lawn maintenance or a new coat of paint on your front door.

It’s the attention to detail that always does the trick in the long run, and a nice backyard is always going to be a big selling point in an age of concrete jungles.

Energy Efficient Kitchen Appliances

Your fridge and dishwasher are costing you money if they are old and use lots of energy. Refitting your kitchen with energy efficient appliances is estimated to save you about 30% on utility bills. On top of which, real estate experts suggest it might boost the resale value of your home.

Which, if you’ve recently seen the state of ovens in some houses on the market, you can easily believe.

For most of us the thought of tax time is enough to send a shiver down one’s spine. Sorting through piles of paper to locate your tax records is akin to pulling teeth.

Then, salt is poured into the wound when you receive an eye-popping bill from your accountant.

The following blog contains simple tips to keep your accountant happy and your wallet healthy.

Time is Money, So Save It

My observation is that many tax agents will intentionally ask unnecessary questions and demand irrelevant documents in an effort to increase chargeable time.

For those in professional services, such as accountants and lawyers, time is the good that is sold. Hence, if you can save your tax agent time they will send you a bill that is less scary.

Make Your Tax Agent Smile

Here are some simple tips to save your tax agent time and therefore reduce your accounting fees:

File as you go

Stay organised throughout the year and you can minimise gaps in your information. This will reduce stress and bother during tax time.

Make sure your tax records are complete

There is no materiality in lodging a tax return. Therefore a couple of missing receipts will likely raise the eyebrows of your accountant.

Put your documents in order

Something as simple as including a dividend summary and backing it with dividend statements which are displayed out of order can confuse a tax agent, and require them to put your records under unnecessary scrutiny. Make sure figures tie up.

Compare your tax records for the current year against last year

This is a very simple way for you to see if you have missed anything.

Perform a high level review

Once you have collected all your tax documents, perform a high level review to make sure you have included everything and that it makes sense. Ask yourself simple questions: why did I only receive one ANZ dividend? Why did I have donations in last year’s return, but none this year? Why were my tax agent fees so high last year?

Preparing For Tax Summary

Time is money for accountants and tax agents. Save them time by taking note of the above tips and you will reduce your accounting bill significantly.

About The Author

Marc is a qualified Chartered Accountant and founding director of Solve Accounting. Marc has extensive knowledge in both the technical and practical aspects of taxation.

You can visit his website here or contact him here. Marc is interested in helping readers of Savings Guide with their tax preparations and returns so please feel free to get in touch for his services.

For one thing, the ATO are always really nice when I call. For another, I’m still one of the lucky sods that doesn’t earn enough to pay much tax so have yet to feel the pinch of pain that tax time can be.

I don’t hate the tax man anywhere near as much as I hate the banks, phone companies and insurance providers.

Here are 5 reasons why you should find some love in your heart and pay your tax.

It’s illegal if you don’t pay tax

Probably a good place to start- if you don’t pay your tax, you will eventually face a penalty. Sometimes that means jail terms, Crazy thought I know, but that’s not really in my life plan so I’m going to stick with the ol’ PAYG instead. You also never have to pay any of those pesky fines that float about, saving yourself money and heartache.

It can be an effective savings mechanism

This works for me every June- tax will come out of my paycheck and I end up getting some of it refunded. Ask your employer to increase the amount they set aside from your income every week, and see the rewards at tax time. Not only will you rest easy, knowing that there will be no sting at the end of the financial year, you’ll have a tidy little sum to invest or spend on a big purchase. I funded two overseas trips from my tax refunds, and over contributed from my Centrelink payments to ensure that some money was set aside. This works especially well if you are someone who has no ability to save unless the money is totally and entirely out of your grasp. I’ve never had a bonus in my life, but tax time feels just as good.

PAYG takes the money out of your hands

I don’t know people ever handled tax time before Pay As You Go. Out of sight, out mind as far as I’m concerned and with consistent withdrawals over the working year, tax ceases to be a painfully huge amount and becomes a series of manageable amounts. A system where you can never end up owing the Tax Office is my kind of system, and will save you having to max out a credit card or break a term deposit and losing money that way.

Tax pays for a lot of benefits

Tax saves thousands of dollars every time we break a leg. It forks out when we lose our jobs, or have to look after someone with a disability. Of course, it was our money to begin with but one look at the American system makes it pretty clear how lucky we are to have it. To live in a country where healthcare is free (though flawed) has to be one of the greatest of privileges. Look back over the year that has gone, and calculate how much you would have spent on medical expenses alone if the government didn’t subsidise it.

Because if you don’t, you’ll end up with five years’ worth of tax returns to do

And no one wants that. Much easier to just do it every June, and live a life of peace the rest of the year.

What do you think are the benefits of paying tax?

I’m sure that habit of mine loses me at least a couple of hundred dollars a year because receipts for some of the valid deductions I could have included are buried underneath three months worth of the Herald.

So I’ve decided to reform. Here’s how next year is doing to be different for my tax return and I:

File file file

Set aside all receipts into one folder. Keep the ones you’re not sure about, and check with someone once tax time is here. For instance, if you work partially from home and have a separate room set aside to do so, you can claim some costs, such as part of your electricity. If you have an investment home, and need to travel to see it, it’s claimable. Make sure you only claim the expenses relating to actually seeing the property, as the Tax Office tends to frown on people claiming two weeks in Noosa to check on the showerhead of a house.

Understand depreciation

If you’ve got an investment property, fixing yourself up with a Tax Depreciation Schedule prepared by a Quantity Surveyor is a must. It’s 100% tax deductible, and can save you thousands of dollars. For buildings built after 1985, even the building itself is a depreciating asset, so make sure you’re fully aware of what you can include in your tax return.

Remember to be gross

Income from an investment property must be declared as a gross amount, with any agent’s fees included as a deduction. A good guide (though a couple of years old) is here, http://www.taxinstitute.com.au/go/seminar-presentations/essential-rental-property-issues-presentation

Get educated

If it relates to your work, the costs of self-education are tax deductible. So if you would like to up-skill or extend your knowledge for your work, you should think seriously about enrolling in a bit of extra education and claiming it on your tax return.

Get charitable

Any donation over $2 is tax deductible. You’ll need a receipt for the donation, but it’s great for the recipient and it’s great for your tax return. I believe they call that a win-win.

Understand your offsets

You may qualify, you may not, but there are a lot of offsets out there and it’s a good idea to check whether you are eligible for one. These include the dependant spouse tax offset, the private health insurance rebate or the baby bonus. It’s best to have a chat with the ATO or your financial advisor about it though.

To e-tax or to not e-tax?

It’s a difficult question, and depends mostly on how complex your tax return might be and whether or not you require a financial advisor. I love e-tax because it stores all my information and gives me less things to hunt down. I also love it because the help section is comprehensive on every element of the return. But I have straightforward income and expenses. If you’re not sure on what you’re entitled to, I would suggest seeing a financial advisor.

What do you do to maximize your tax return?

Many readers are looking forward to lodging their tax return in the hope that they will receive a refund on their yearly payable tax, yet most are not sure what they are going to do with it.

Some of the potential uses include; paying down debt, frivolous spending and shopping, investments and most importantly, finally building that savings nest egg you are always thinking about.

Today, lets look at some of the options on what to do with your tax return (if you get one) and how you can use it to benefit yourself in ways a little deeper than just buying a new pair of shoes, a handbag or that laptop you have wanted for over 6 months. You may also want to read the top tax tips for Aussies to help get the most out of your tax return.

Using your tax return to pay outstanding debts

It is kind of hard to start saving money when you know that you have debts that are wilting away at your savings via expensive interest payments. If you are like me, you will like the idea of saving money but can’t get past the notion that while you still have outstanding debts, how can you expect to feel good about your savings account?

The average Australian has over $3500 in debt owing (excluding mortgage debts and the like) according to News Ltd and yet we continue to refuse to pay down these debts as a result of continued credit spending. If the average tax return yields an extra $1000 into the hands of everyday Aussies, why not put the money towards that draining credit card debt? It will dramatically decrease the amount of interest payable on the card and reduce the time it takes you to pay it off by.

Frivolous spending and shopping with your tax return

This is likely to be the number one use of everyday Australians, we mean well but end up spending the money on everyday items like petrol, food and entertainment. I cannot convince you not to spend your money like this, but I can tell you that by saving the money, investing the money or thinking up other financial strategies to put your money to work – you will find yourself with more money to spend in the future.

Investing your tax return

I for one love investing my tax return. It normally gives me a good number to invest and put towards something with a high growth projection as I see it as money I will not need to touch for atleast 5 years. Options for investing tax returns include; Managed funds, Shares, High Interest Bank Accounts for those who are more conservative and some also pay it towards their mortgage (technically this is paying down your debt as talked about in point 1, but others see it as an investment towards property).

Saving your tax return

If you are going to save your tax return, make sure you look for the best possible interest rate available. I have quickly glanced at a number of the big 4 banks in Australia to check what rates they offer and they differ by nearly 2-3% – that is a big difference and a big potential drop in what you could be earning. Take a bit of time to find the best product for yourself and ensure that the rate is competitive. Is your current savings account not competitive enough? Change providers.

What are you doing with your tax return?

So what will you be doing with your tax return? We are looking for the most interesting ideas to further add to this article.