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Home / How super works / Super and tax / Income tax

Income tax

The Australian income tax system for individuals is based on marginal tax rates and income thresholds. The higher a person’s taxable income in a financial year (July 1 to June 30), the more tax they pay.

In addition, most Australians pay a Medicare levy of 2% of their taxable income. Those earning higher taxable income amounts are also liable for an additional Medicare levy surcharge of 1 to 1.5%.

A person’s taxable income sources can include:

  • employment income,
  • super pensions and annuities (if they aren’t tax-free),
  • some government benefits,
  • investment income,
  • business, partnership and trust income,
  • foreign income, and
  • crowdfunding income.

An individual can reduce their taxable income by claiming tax deductions. Common tax deductions include:

  • work-related expenses,
  • the cost of managing tax affairs,
  • gifts and donations,
  • interest, dividend and other investment income deductions, and
  • personal super contributions.

Individuals can also reduce their tax payable if they are eligible for tax offsets, such as:

  • the Seniors and Pensioners Tax Offset (SAPTO),
  • the Low Income Tax Offset (LITO), and
  • the Low and Middle Income Earners Tax Offset (LMITO).

It’s important to understand that unlike tax deductions, tax offsets can only be used to reduce the amount of tax payable, they can’t be used to generate a tax refund from the Australian Taxation Office (ATO). Any unused tax offset is non-refundable.

Set out below are all SuperGuide articles that relate to Income tax.

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Income tax: Australian tax brackets and rates (2020/21)

October 9, 2020 by Barbara Drury 2 Comments

Learn the Australian income tax rates for 2019/20 and 2020/21, as well as details on how income tax is calculated, deductions, offsets and levies.

Guide to the Low and Middle Income Tax Offset (LMITO)

October 9, 2020 by Barbara Drury 2 Comments

The Low and Middle Income Tax Offset (LMITO) helps low and middle income earners lower the amount of tax they need to pay. Because it is a tax offset, it can only be used to lower the amount of tax that you owe and not to generate a tax refund or pay your Medicare Levy.

Guide to the Low Income Tax Offset (LITO)

October 9, 2020 by Barbara Drury Leave a Comment

The $700 Low Income Tax Offset (LITO), combined with the tax-free threshold of $18,200, and the Low and Middle Income Tax Offset effectively allows working Australians to earn up to $22,801 for the 2020/21 financial year before they need to pay any income tax or Medicare Levy.

Personal income tax cuts (2018–2025): What it means for you

October 9, 2020 by Barbara Drury Leave a Comment

The Personal Income Tax Plan which provides targeted tax relief over seven years for low and middle income earners and protects middle income Australians from bracket creep consists of three steps.

How does SAPTO work? (Senior Australians and Pensioners Tax Offset)

August 11, 2020 by Barbara Drury 2 Comments

The Senior Australians and Pensioners Tax Offset (SAPTO) won’t shower you in riches. But depending on your age, relationship status and income, it could provide a handy tax offset of up to $2,230.

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What just happened to our tax? Here’s an explanation you’ll understand

April 5, 2019 by Peter Martin Leave a Comment

With all the announcements on tax over the past few days it’s hard to keep track. So here goes. A year ago the then treasurer Scott Morrison unveiled a “seven year personal tax”.

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How super works
Super for beginners
Super rules
Employers guide to super
Super contributions
Super and tax
Accessing super
Super news
Women and super
Super tips and strategies
How-to guides
Super quizzes
Superannuation Q&As
Superannuation glossary
Super funds
Best performing super funds
Super fund rankings
Best performing pension funds
Pension fund rankings
Super fund average returns
Super investing strategies
Comparing super funds
Choosing a super fund
Choosing an investment option
Super fund fees
Insurance and super
Super fund profiles
SMSFs
SMSFs for beginners
SMSF administration
SMSF checklists
SMSF compliance
SMSF investing
SMSF pensions
SMSF strategies
SMSF Q&As
Plan your retirement
Retirement planning for beginners
When should I retire?
How long will I live?
How much super do I need?
Will I get the Age Pension?
How much will I spend in retirement?
Financial advice
Retiring overseas
Preparing for retirement
Retirement planning strategies
Retirement calculators and reckoners
In retirement
Income in retirement
Super lump sums
Super pensions
Age Pension
Working in retirement
Life in retirement
Senior concessions and services
Aged care
Estate planning
Super death benefits
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