Tax time Terms - start with the basics!

Last month we posted a blog about the expenses that Miners and FIFO workers can claim on. If you missed it, check it out here.

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Last month we posted a blog about the expenses that Miners and FIFO workers can claim on. 

In this issue I want to take a step back and look at some of the key terms that get thrown around at this time of the year. I don’t know about you, but if someone asked me to define Medicare Levy,I wouldn’t have a clue!

Knowing the basics is actually a really good place to start; it will help you feel more confident leading up to July 1st and actually understanding some of the key terms when it comes to tax time will save you time and possibly money. So without further adieu, feast your eyes on these Tax Terms – explained for everyday people like you and I, who don’t just happen to be tax time experts.

These terms were sourced from the Prosple Blog, written by Rob d’Apice, see the blog here .

  1. Gross income.  Your whole income before any deductions and before any tax is applied (this amount will be bigger than your ‘take-home’ cash, that already has tax withheld from it).  Gross income includes regular PAYG income, bank interest, investment returns, government welfare, and services you may have charged as a contractor (if you have your own ABN).
  2. Deductions.  Expenses you have incurred that are ‘tax deductible’.  This means that the whole amount of the expense is deducted from your Gross income before tax is applied.  Conceptually, think of it as netting out the gains of your employment (Gross income) with the costs associated with your employment (deductions) to work out the net amount that you ‘really’ earned from your employment, in other words your… Taxable income. Gross income less deductions.
  3. Medicare Levy. A levy charged to all Australians (1.5% of taxable income), unless you qualify for a reduction or exemption.  You can qualify if you have a low income, are in medical hardship, are residing overseas or you are a temporary resident in Australia and are not entitled to Medicare.
  4. Medicare Levy Surcharge.  The Medicare Levy Surcharge (MLS) is levied on payers of Australian tax who do not have private hospital cover and who earn above a certain income. It aims to encourage individuals to take out private hospital cover and where possible reduce the demand on the public Medicare system. For more info and to use the online Medicare Levy Surcharge Calculator, visit the Australian Government private health website here.
  5. Gross tax payable. The total amount of income tax (including medicare levy and surcharge) based on your taxable income.
  6. Offsets. An entitlement that reduces your Gross tax payable by a specified amount. For example; the (unnecessarily complicated) Low Income Tax Offset (best explained here, but you don’t really need to know the details – E-tax does the grunt work for you).
  7. Tax Refund / Tax Debt.  Your Gross Tax Payable, less Offsets, less total Taxes Withheld (the tax your employer has already paid for you). If this number is negative, you’ve overpaid tax and the ATO will send you a refund.  If it’s positive, you owe more tax than you’ve paid and you have to pay it back to the ATO.

Disclosure: MPi are not tax accountants or tax lawyers so we do not guarantee the exactness of this information. If you are looking for professional advice, please visit the ATO website or seek the assistance of a professional tax accountant.