This is something that has stumped me for just about all of my adult life. It is not that hard to understand but something I always struggle to remember, the difference between NET and GROSS when it comes to numbers.
For me it always pops up when I am thinking about changing jobs and get made an offer. Other times it might be in a new article or a friends conversation, so here is the definitive explanation of GROSS and NET profit so you can be armed to understand what the difference between NET and GROSS is next time.
What is GROSS profit?
Gross profit is the amount of money BEFORE any deductions are made. This means you might get a job that has a gross salary of $45,000 – though this doesn’t include the ATO’s tax and any other costs you might incur.
What is NET profit?
NET profit is the amount of money you have left AFTER you deduct tax and any tax deductions you might have. For example, the $45,000 salary is gross, though the net salary would be that number MINUS your individual income tax rates.
In this case that means $45,000 minus $4,650 plus 30cents for every dollar over $37,000. To understand this, you need to see the ATO’s income tax rate breakdown from the link above (note that they are for 2011/2012).
This is why it is called your ‘take home pay’ as such.