Calculating Tax Payable

Last updated 4 August 2016

In order to calculate tax payments, it is necessary to start with a person’s gross income, including net capital gains.

Any deductions allowable under the applicable Acts should be subtracted from the gross income to arrive at the taxable income.

The tax is then determined using the Commissioner of Taxation’s tax scales. Any rebates must then be deducted and any Medicare levy must be added.

The return instructions give step-by-step guidance.

Self-assessment

The self-assessment system means that taxpayers are generally assessed before the Australian Taxation Office (ATO) examines their returns in detail.

If there are any errors detected, the ATO may issue an amended assessment. The taxpayer is obliged to repay any tax owing, together with interest and/or penalties as prescribed by law. If taxpayers are found to have overpaid their tax, they will receive interest from the ATO on that amount.

Rulings system

The self-assessment system is based on a series of binding public and private rulings made by the commissioner.

The commissioner makes public rulings, which are binding if they are favourable to the taxpayer. A public ruling may deal with the way in which a tax law is to apply in particular circumstances. No specific penalty tax provisions apply when a taxpayer does not adhere to a public ruling, but failure to comply with a public ruling may affect the amount of penalty for any breach of tax law.

The commissioner may make private rulings, which are binding on the commissioner in relation to particular arrangements entered into by a taxpayer.

An application for a private ruling must be made in a form approved by the commissioner. It must give the information required by the commissioner and be accompanied by prescribed documents.

A person who is dissatisfied with a private ruling may object in accordance with the objection procedure of the Taxation Administration Act 1953 (Cth). If a tax shortfall is caused as a result of disregarding a private ruling, additional tax is payable.

A private ruling may be useful if a person is uncertain about their tax position and is concerned that they might subsequently be penalised. A private ruling by the commissioner will give guidance on how certain taxation arrangements will ultimately be viewed by the commissioner.

Medicare levy

A Medicare levy is charged on the taxable income of individuals who are residents in Australia at any time during the year of income.

Individuals and families on incomes above the Medicare levy surcharge thresholds, who do not have an appropriate level of private patient hospital cover, may be required to pay Medicare levy surcharge for any period during the year that they did not have this cover. The Medicare levy surcharge is in addition to the Medicare levy.