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-: Peter is a 66-year old Australian resident
who is married with children.
During the current tax year,
Peter derived salary income and net capital gain,
and received fully franked dividends.
Peter also had deductions,
which all related to earning his salary.
Peter has adequate private hospital health insurance cover,
and had tax withheld from his salary,
by his employer, during the year.
Peter's wife, Fiona, does not work.
She received a disability support pension,
had an adjusted taxable income of $5,500,
including the pension, and was not entitled to,
nor claimed, any family tax benefits.
So how do we work out what Peter's liability is,
for the tax year?
Let's start with the formula: taxable income
equals assessable income less allowable deductions.
We then determined gross tax payable
on the taxable income,
subtract non-refundable tax offsets,
before we add any applicable levies,
less refundable tax offsets.
And, finally, we subtract tax paid.
This leads us with the tax refundable,
or payable, as our balance.
So, for Peter, step one requires us
to determine his taxable income.
Peter's salary is ordinary income,
and the dividends received, a statutory income.
The dividend is grossed up for the franking credit,
by multiplying the dividend amount by the tax rate,
and then dividing by one minus the tax rate.
the net capital gain is also included,
which being the net gain assumes the discounts
if any, have already been applied.
Adding these together gives us
Peter's total assessable income.
We then subtract Peter's allowable deductions
to work out Peter's taxable income.
For step two,
we determine the basic income tax liability payable
by referring to the general tax rates,
for the range in which Peter's taxable income sits.
And finally, step three requires that tax offsets
and any additional charges and levies, be taken into account
As Peter's wife, Fiona, was in recipient
of a disability support pension,
and was not working, she qualifies
for the dependent invalid carer tax offset, or IICTO.
This is a non-refundable tax offset, and therefore,
needs to be deducted from gross tax payable,
first, before any additional charges and levies
are taken into account.
In this case, Fiona's adjusted taxable income
is used to determine the IICTO.
This is subtracted from Peter's tax payable,
not his taxable income.
The Medicare levy is based on Peter's taxable income.
We now work this out and add it to Peter's tax payable.
Peter is also entitled to the dividend franking credits,
because he received fully franked dividend income,
and the fully grossed up amount was included
in his assessable income.
Finally paid a pay tax this year,
and therefore, has a PAYG credit,
which is now subtracted from his tax payable.
We have now determined Peter's net tax payable.
To recap, you need to be able to calculate taxable income
and, then, tax payable for a resident individual.
Note, that gross tax payable must be reduced
by any non-refundable tax offsets
before adding any applicable levies.
from this, any refundable tax offsets and any tax paid,
are subtracted to give the net tax payable.