Tax Tip 197: How much can be earned without having to pay tax?

Discussion in 'Accounting & Tax' started by Terry_w, 9th May, 2019.

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  1. John Smith

    John Smith Well-Known Member

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    My projections of dividends to be earned by my wife for this fin year should be approx 19k. From the discussions I have read in this thread, is there a chance she won't need to pay tax? She doesn't work and holds these shares outside of super environment.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If that is her only income it is likely no tax payable. She might even get back some franking credits
     
  3. John Smith

    John Smith Well-Known Member

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    Hi Terry.

    That includes 6k of franking credits. Thanks for your reply.
     
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    $6k refund if that's the case
     
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    It is USUALLY exempt and shouldnt be assumed as a blanket rule. However where the referee is engaged in professional sports it may be assessable. eg NRL referee. However some ground officials may remain exempt eg AFL boundary umpires as their income is really that of a sporting hobby and interest. This also means they cannot deduct costs that exceed allowances. Or fitness or other related costs. There are class rulings on this issue and I have provided an example.

    In your case it is NOT income and they wont receive a paymnet summary and it should never be subject to taxation withholding.

    https://www.ato.gov.au/law/view/document?docid=CLR/CR200942/NAT/ATO/00001
     
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  6. Pumpkin

    Pumpkin Well-Known Member

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    New to SAPTO and found this thread, still trying to digest.... But a quick look tells me it's not easy to be eligible for SAPTO?
    Or did ATO change the rules after this post?
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    SAPTO is complex and changes annually along with other scale issues like the changes to tax scales and rates and other offsets. Remember the eligibility is based on ages and also spouse income and also receipt of certain elements of income (rebate income) with phasing out. Our software calculates this for each taxpayer if applicable. The age rules affect which pensions etc can be counted. eg DVA could be younger than the age pension for example.

    Seniors and pensioners tax offset
     
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  8. Pumpkin

    Pumpkin Well-Known Member

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    Thanks for your response. We await the response from our Accountant as to why hubby received in in FY18 &19, but not 20 & 21, will everything being status quo....
     
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    1. Its not a refundable offset. 2018+20 could have had other tax credits leaving other taxes paid refundable at the time (eg tax withheld, franking or instalments) where 2010+2021 didnt so it covered any tax and that was final. And a offset doesnt cover Medicare levy. Just primary tax.
    2. Any cap gains and unusual income ?
    3. Was the offset code entered into the return at Label T1 ?
     
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  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    From this financial year (2022-23) on wards the Low and middle income tax offset has been removed.
    This means that the amount the average taxpayer can earn without paying tax has been reduced to just $21,884

    According to taxcalc.com.au
    upload_2022-7-14_10-54-24.png
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    for someone qualifying for SAPTO the figure is $33,088

    upload_2022-7-14_10-57-57.png
     
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  12. Pumpkin

    Pumpkin Well-Known Member

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    Just looking at SAPTO again and it's sad to see it's getting harder and harder, or in our case, impossible.
     
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  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    But there can be broader other benefits that many disregard
    • Personal deductible contributions
    • Personal deductible contributions under c/fwd rules
    • Co-contribution benefits
    Elimination of tax is just part of strategy. reducing tax can also be an alternative strategy so the effective marginal rate is minor.

    I often see this with people fearing CGT income like the ATO will take it all. The maximum marginal tax rate on CGT profit is 24.5%. So in other words 75.5% tax free.

    Other fear Division 293 tax which is difficult to avoid. Its not a extra 15% tax on income. Its a extra 15% of taxed super contributions...and it can be paid out of the fund. eg Fred sells a IP with a $1m profit. This pushes him into Div 293 land. He fears this hefty tax. The Div 293 tax may be 15% x employer contributions - Lets say its $27500. This is a FIXED $4125 whether the CGT gain is $100K or $1m. And it can be paid out of the fund where the contributions sit.
     
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  14. Owlet

    Owlet Well-Known Member

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    Why should people have to pay an extra 15%?

    So one works a whole year for a salary and the employer pays the compulsory 9.5%
    An IP is sold and the net profits added to the salary combined are over 250k
    So the person loses 15% of those contributions
    Salary 100k - super contributions 9.5k - then the government is going to make the person (or their superfund) pay $427.50?

    And if someone decided to personally add to their super - would they too have lost an additional 15%?
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Employer super hasnt been 9.5% for a long time. It rose to 10%...Then 10.5%.

    Division 293 was introduced to clawback the increased tax benefits of super contributions being a tax benefit for certain high income earners who manage to pass the threshold. Its what the Parliament and Treasury designed. Its core base uses taxable income. In reality a CGT issue may only be 50% taxed so this process doesnt tax all the CGT amount. Its a known issue that taxpayers should consider...but may be unavoidable. It trims some of the tax benefit. Think of it this way...Each employee gets 10.5% as part of remuneration. Their employer deducts this like salary. The fund is taxed at 15% initially. So there is a tax benefit as its not taxed at a marginal tax rate. Now imagine a $3m earner. They get $27500 of super. Should that only be taxed at 15% and not 47%...Well Division 293 says they should pay some more. So it adds a extra 15%...Total 30%. The taxpayer can choose the fund pays it OR pay it personally

    Div 293 REDUCES the tax benefit on contributions from a maximum of (47% - 15%) 32% benefit to 17%. Its still a benefit.

    There are many examples of means tested benefits that are lost as income etc rises. These include the tax scales themselves which step up. Then there are tax offsets that disappear as income rises. Child care and family tax benefits. . Medicare levy is progressive and adds 2% for each dollar of income (whithout limit) as well. Then above a threshold the private health insurance oligation and offset which tapers off. And so on.

    Many low income earners also question the generosity of the 50% CGT discount which favours the wealthy. Taxpayer funded negative gearing is also contentious
     
    Last edited: 6th Jun, 2023
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Its law and the general idea is that those on higher incomes pay more tax than those on lower incomes.
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    For next financial year

    upload_2023-6-7_10-51-51.png


    The average resident taxpayer could earn up to $21,884p.a. and not pay any income tax.
     
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  18. oracle

    oracle Well-Known Member

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    If a couple each earning $30K fully franked dividends.

    Tax on $30K = $2042
    Franking credits = $12,857
    ATO Refund = $10,815

    Total income after tax = $40,815

    Total income after tax for couple = $81,630

    @Terry_w do above number look Ok for FY23-24?

    Tax rate = 5% (I am sure not many people would complain to pay 5% tax)

    Cheers,
    Oracle.
     
  19. SatayKing

    SatayKing Well-Known Member

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    SK objects to the unfair tax treatment of single persons and/or single income households due to the application of the tax-free thresholds. Grump × n times.

     
  20. dunno

    dunno Well-Known Member

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    You need to add the Imputation to the taxable income (ie tax on $42,857) then work out tax payable.

    Total Income after tax for Couple = $75,494.59.
     
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