7 Things to Know About Borrowing in Super
7 Things to Know About Borrowing in Super
February 11, 2018
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How different Income Tests can affect your Tax Return

Income Tests

Everyone that lodges an income tax return, has a “taxable income” figure (whether positive, $nil or even negative due to losses). This is the income that Income Tax is calculated on and its what most people identify with as their “income”.

But did you know, your tax return is used to calculate another 4 different income figures used to calculate your entitlements to Private Health Insurance rebates, Centrelink benefits and offsets. As well as calculate how much Medicare Levy Surcharge and HECS/HELP repayments you may have to make?

Depending on your circumstances you may have 5 different incomes to keep track of.

[Warning – this blog contains an extraordinary amount of definitions for 5 very similar concepts (thank you ATO). We have attempted to keep it as simple as possible.]

That is, your taxable income (that is, assessable income less allowable deductions) may differ from your –

Income Tests

  What it is used for  
Taxable Income Your income tax payable or refundable.
Income for Medicare Levy Surcharge purposes Your entitlement to Private Health Insurance (PHI) rebate. If you don’t hold PHI then it is used to calculate whether you need to pay Medicare Levy Surcharge.
Adjusted taxable income Your entitlement to the dependent tax offset and access to Centrelink benefits such as Family Tax Benefit (FTB) Part A & B and Child Care Benefit (CCB). It is also used in the basic 8 step formula in calculating child support. 
Rebate Income Your entitlement to the Seniors & Pensioners Tax Offset (for taxpayers at Aged Pension age & over).
HELP/HECS/SFSS Repayment Income How much you need to repay towards your higher education debts and / or loans.

Now we know what the income tests are and what they are used for, let’s understand how they are calculated (and how they differ from ordinary taxable income). 

Income Tests Formulas

  How It Is Calculated
Taxable Income Assessable income less allowable deductions
Income for Medicare Levy Surcharge purposes + Taxable Income

+ Reportable Fringe Benefits amount*

+ Total net investment losses^

+ Reportable Super Contributions

+ Any amount on which Family Trust distribution tax has been paid

Adjusted taxable income + Taxable Income

+ Adjusted Fringe Benefits amount*  

+ Tax-free Government Pensions & Benefits

+ Target foreign income (not already in taxable income)

+ Total net investment losses^

+ Reportable Super Contributions

– Child Support you paid

Rebate Income + Taxable Income

+ Adjusted Fringe Benefits amount*  

+ Total net investment losses^

+ Reportable Super Contributions

HELP/HECS/SFSS Repayment Income + Taxable Income

+ Reportable Fringe Benefits amount*  

+ Total net investment losses^  

+ Reportable Super Contributions

+ Any exempt foreign employment income amounts included in a tax return.

^includes both net financial losses & rental property losses

* Reportable fringe benefits amount, is the amount shown on your payment summary. Adjusted fringe benefits amount is your reportable amount x 0.51.

 

As you can see, your income tax return, can produce 5 different calculations of “income”, with each a separate (and really critical) purpose. Understanding what makes up the income tests can help you manage the resulting liabilities or entitlements better. At the minimum it can reduce the unexpected surprise if you understand what liabilities / entitlements are based on. 

If you need further assistance understanding your income tests or want a free 15min phone consultation to ensure your income tax return correctly reports the amounts, please contact myself or one of our qualified accountants in the tax team.

Ph. 07 3849 3816

Email: tax@goadaccountants.com.au

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Disclaimer: The information contained on this website is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website are of a general nature only and are based on Goad Accountant’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Karen Goad
Karen Goad
Owner & Founder of Goad Accountants and Simply Business Bookkeeping. Karen is a Chartered Accountant and Certified Tax Adviser with over 19 years of experience advising property investors, property developers, veterinarians, small and medium business and helping them get the most out of their business through accurate record keeping, tax advice, KPI monitoring and profit improvement strategies. Goad Accountants also specialises in self-managed super fund administration.

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