Taxation

Tax is collected by the government. The money is used to pay for roads, schools, hospitals, politicians, etc.
 * Income Tax **

There are a variety of types of taxation:
 * Income tax
 * GST (Goods & Services Tax) (tax on sales and services)
 * Company Tax
 * etc

We will be looking at Income Tax.

Gross Income This is the total income you receive. It is the sum of any:
 * wages
 * salaries
 * interest from bank deposits
 * dividends from any shares you own (a dividend is your share of the profits of the company)
 * winnings from lotteries
 * inheritance
 * etc

Tax Deductions There are a variety of things you are not required to pay tax if you spend the money on those things. Deductions include:
 * any money spent on equipment/uniforms/fees/travel etc used for earning your income
 * any money spent on educating yourself to do your job better
 * any money donated to registered charities
 * etc

Taxable Income Taxable Income is the $amount we use to calculate how much tax needs to be paid.

Taxable Income = Gross Income – Deductions

Jo has a salary of $28,000 per annum and has a bank deposit that has earned $1,200 in interest. Her __Gross Income__ is therefore $28,000 + $1,200 = $29,200
 * Example 1 **

Jo spent $300 on buying and maintaining her work uniform and made a $200 donation to charity. Her __Deductions__ are therefore 300 + 500 = $800 Her __Taxable Income__ is therefore 29200 – 800 = $28,400

Tax Calculation The amount of tax to be paid is set by the government and has changed a number of times in the last 10 years, but the way to calculate tax has not changed.

Here is an example of a typical tax table: Jo has a taxable income of $28,400 Use the 3rd row of the table. The start of the range for the 3rd row is $25000 28400 – 25000 = $3,400
 * Taxable Income || Tax Payable ||
 * $1 - $6000 || nil ||
 * $6001 - $25000 || nil plus 20 cents for each $1 over $6000 ||
 * $25001 - $50000 || $3800 plus 25 cents for each $1 over $25000 ||
 * $50001 and over || $10050 plus 35 cents for each $1 over $50000 ||
 * Example 2 **

The 3rd row calculation is: Tax = 3800 + 0.25 × 3,400 = $4,650

PAYE PAYE stands for Pay As You Earn

It is a system where the estimated tax you have to pay is taken out of your pay cheque each week (or fortnight). This way you are not faced with a big bill for tax at the end of each year. Because it is only an estimated amount being taken out, we often end up having to pay a small amount extra OR being paid a small refund by the government if we have paid too much.

Jo has $185 PAYE tax taken out of her pay each fortnight. PAYE tax paid = $185 × 26 = $4,810
 * Example 3 **

At the end of the financial year, Jo calculates that she only needed to pay $4,650 She has paid too much, so she gets a refund from the government: Refund = 4810 – 4650 = $160