How The Tax Bracket Affects Your Pay
The Australian Government performs its tax rates based upon a sliding scale relevant to your income – but if it were this easy to understand, we wouldn’t have to write this blog! Unfortunately, multiple instances of tax brackets, tax-free threshold, assemble income, deductions, & numerous other terms coined by the ATO can get confusing at the best of times; and downright frustrating when it directly impacts the amount of income you earn each year.
So, skip the headache and let The A Firm take you through exactly how your annual earnings are affected by the tax brackets (and some insider tips on saving your hard-earned cash!)
Explaining Australia’s Tax & It’s Thresholds
As we mentioned before, all Australian citizens are taxed based on a sliding scale. This begins with the tax free threshold.
The tax free threshold is your first $0-$18,200 taxable income earned per year. What’s important about this amount is that it will not be taxed, no matter how much you earn after it.
What will be taxed, however, is any amount over that initial $18,201 up to $45,000 that you earn this year. This is the first tax bracket. The next tax bracket after that is taxable income from $45,001 – $120,000, and where most Australians sit income-wise.
These tax brackets will continue up until $180,000+, so it’s important to know where you sit in order to understand how much you of your income will be taxed. Or, to make things easier on you, a professional accountant will take care of this for you & even give you advice on how to save more of your income from tax.
Breakdown Of The Brackets:
We’ve detailed the exact specifics of each bracket’s tax rate below:
| Taxable Income | Tax Payable |
| $0 – $18,200 | No Tax |
| $18,201 – $45,000 | 19% of excess over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5% of excess over $45,000 |
| $120,000 – $180,000 | $29,467 plus 37% of excess over $120,000 |
| $180,000 & over | $51,667 plus 45% of excess over $180,000 |
One important thing to note: this table does not include the Medicare tax levy.
What Is Assessable Income?
You may hear the phrase ‘Assessable Income’ when delving into this subject and it will aid you greatly to understand it’s meaning.
Assessable income is, broadly, all of your ordinary income & your statutory income before deductions are made. Your assessable income will likely be larger than your actual taxable income, especially if you are a business’s owner. What is important to note about assessable income is that this amount is what you can claim your allowable deductions from.
How You Can Keep Your Pay Topped Up With Deductions
Deductions, roughly speaking, are expenses that you have incurred throughout the year because of the responsibilities of your work. This may include travel costs, such as if you had to drive a long distance on a work project or client’s request.
This is where your accountant can become creative & afford you a financial solution that can possibly avoid tipping you into the next tax bracket, thus potentially saving you money on tax.
Deductions are also crucial to keep track of for business owners, as owning and running your own business will undoubtedly expose you to many more allowable deduction opportunities than as an employee. These deductions will be made from your assessable income, and the remaining amount will be classified as your taxable income.
Although there is a lot of potential for financial footwork from savvy business owners, it is highly advisable to seek the counsel of a qualified accountant or bookkeeper. The ATO takes its tax deductions very seriously and a miscalculation or error could result in painful legal headaches.
The Australian Government’s tax brackets (& their associated assessable income and tax-free threshold) can be difficult to wrap your head around at first, but understanding them will ultimately give you a better picture of where you stand come tax time (hint: it’s just around the corner!) While the tax-free threshold is already quite generous, the good news is that with the right accountant, you can potentially save even more of your personal & business taxable income through financial solutions perfected over 20+ years! Book a chat with our expert accountants & bookkeepers today – obligation-free!
