Question

For the tax year 2017-18 Alice, an Australian resident, earned a gross salary of $85,000 and received a franked dividend of $30,000. PAYG tax was paid on her behalf by her employer. She had allowable deductions of $2,000. Calculate her taxable income and tax payable including the Medicare levy.

Answer 1

The taxable income calculation in the hands of Alice for 2017-18 is :-

Employment income (less allowable deductions) : $83000 [85000$-2000$]

Other taxable income: $30000

Total taxable income : $113000

Income tax payable :$29442

Medicare levy payable: $2260 [ 113000$*2%]

Your marginal tax rate:	37%

This means for an annual income of $113,000 you pay:

No tax on income between $1 - $18,200	$0
19c for every dollar between $18,201 - $37,000	$3,572
32.5c for every dollar between $37,001 - $87,000	$16,250
37c for every dollar between $87,001 - $180,000	$9,620
Income tax payable	$29,442

Points to understand:-

1. If you're an Australian resident for tax purposes, you have to declare all income you earned both in Australia and internationally on your Australian tax return (even if you've already paid tax on it overseas).

2. An access to health care received by Australian residents is partially funded through Medicare levy. It is 2% of the taxable income.

3. PAYG is pay as you go. PAYG withholding:- The purpose of the system is to pay your employee tax obligation on their behalf. In most cases, your employer will deduct the income tax from your wages and pay it to the ATO.

4. Franked dividends can be fully franked (100%) or partially franked (less than 100%). The shareholder submits the dividend income plus the franking credit as income but will end up being taxed only on the dividend portion.

Franking credit = (Dividend Amount ÷ (1 - Company Tax rate)) - Dividend Amount

5. In the above case no company tax rate is available.

6. These calculations do not take into account any tax rebates or tax offsets you may be entitled to