Net income = gross income − deductions
■ Superannuation
Superannuation is money set aside by an employee for their retirement. Upon retirement, it can be taken either in a lump sum or in the form of regular payments. An employee can decide how much, if any, of their gross income to save in this manner. Employers, however, are required by law to contribute a percentage of each permanent employee’s wage or salary into a superannuation fund on their behalf.
Example
A carpenter is paid a gross annual salary of $34 630. Each week he contributes 5% of his gross pay to a voluntary superannuation fund. His other weekly deductions are $166.50 in PAYG tax and $6.90 for union fees.
a Calculate the total deductions. b Find the net weekly income.
Solutions
a i Weekly superannuation contributions= 5% of $34 630 ÷ 52
= 0.05 × $34 630 ÷ 52
⯐ $33.30 ii Total weekly deductions= $33.30 + $166.50 + $6.90
= $206.70
b Net weekly income= gross weekly income – deductions
= ($34 630 ÷ 52) − $206.70
⯐ $459.26
1 Jack earns a gross weekly salary of $480. His employer deducts $116 in PAYG tax instalments each week. What is Jack’s net weekly pay?
2 Julianne has a net weekly salary of $372 and deductions totalling $143. What is her gross weekly pay?
3 Eve’s gross fortnightly pay is $1070. Each fortnight her employer deducts $313.40 in PAYG tax instalments and she contributes $51.70 to a voluntary superannuation fund for her retirement. Find Eve’s net weekly pay.
4 Calculate the net pay for each of these employees.
a Mick has a gross fortnightly wage of $964 and deductions of $210 in tax and $14.50 in union fees.
b Yumi has a gross weekly wage of $755.40 and deductions of $213.10 in tax, $37.75 in superannuation and $13.50 in health insurance.
c Nicholas has a gross monthly salary of $2690.80 and deductions of $794.65 in tax,
$21.30 in life insurance and $32.82 in union fees.
EG+S
Exercise 3.4
■ Consolidation
5 Mrs Hadlee has a gross annual salary of $32 568. Each week, the following amounts are deducted from her pay: tax, $151.80; superannuation, $32.95; health insurance, $15.45.
Find her:
a gross weekly pay b total weekly deductions c net weekly pay
6 A printer is paid a gross weekly wage of $13.25 per hour for a 40-hour week. He has weekly deductions totalling $195.20. What is his net weekly wage?
7 A fork-lift driver is paid a gross wage of $13.40 per hour for 75 hours per fortnight. He has deductions of $303.15 in PAYG tax instalments and $15.50 for home and contents insurance. Find his net fortnightly wage.
8 The gross hourly wage for a fitter and turner is $16 per hour for a 34-hour week. He has
$152.32 deducted in weekly tax instalments. What percentage of his:
a gross wage is paid in tax?
b net wage is paid in tax? (Answer correct to the nearest whole percentage.)
9 Maryanne receives a gross fortnightly wage of $1366 and her fortnightly deductions total
$524. Find her net monthly wage.
10 A ferry master is paid $13.80 per hour for a 40-hour week, with overtime paid at the time and a half rate.
a Find his net pay for a week when he worked for 45 hours and had PAYG tax deductions of $229.98.
b What percentage of his gross pay was paid in tax? (Answer correct to the nearest whole percentage.)
11 A construction worker earns $19.60 per hour for a 38-hour week plus a weekly site allowance of $18.90. Each week his employer deducts $267.30 in tax and 5% of the gross wage is paid into a superannuation fund.
a How much money is paid into the superannuation fund each week?
b Calculate the worker’s net weekly pay.
12 Working as a crane operator, Barry earns $14.50 per hour. His normal working hours are from 8 am to 4 pm, Monday to Friday, with overtime paid at the double time rate. Last week, Barry worked the following hours:
• Mon.—8 am to 4 pm • Tues.—8 am to 5 pm • Wed.— 8 am to 5:30 pm
• Thurs.—8 am to 4 pm • Fri.—8 am to 4:30 pm
Each week Barry pays 7.5% of his gross wage (not including overtime pay) into a
superannuation fund. Last week his employer deducted $195.65 in PAYG tax instalments.
a What was Barry’s gross pay for last week, including overtime pay?
b How much money is deducted in superannuation payments each week?
c Calculate Barry’s net pay for last week.
■ Further applications
13 Dominique has a regular net weekly income of $468. Her employer deducts 35% of her gross weekly income in tax. Find Dominique’s gross annual salary.
14 Last week Zachary worked for 36 hours at the normal pay rate and 4 hours overtime at the double time rate. His employer deducted 43% of his gross income in tax, leaving a net income for that week of $478.80. Calculate Zachary’s normal gross hourly pay rate.
Under the Pay As You Go or PAYG tax system, employers deduct money each pay period from the gross pay of their employees. Self-employed people need to organise this themselves. This money is then paid to the government on a monthly basis. The amount of money deducted varies with each employee according to their gross income and the tax scales in operation at the time.
The financial year begins on 1 July and ends on 30 June. At the end of each financial year, employers are required to give each employee a payment summary form. The payment summary form shows the annual income, deductions such as union fees and superannuation, and the amount of tax that has been withheld during the year. Employees, and those who are self-employed, must then fill in a tax return form and lodge it with the Australian Taxation Office (ATO) on or before 31 October. If a person does not lodge the form in time, they may be fined.
The amount of tax that each person must pay is based on their taxable income. The taxable income is calculated by finding the total gross income (e.g. salary, bank interest, rent from an investment property) and then subtracting any allowable tax deductions (e.g. work-related expenses, travel expenses, charitable donations). People can minimise the amount of tax that they have to pay by claiming as many legitimate tax deductions as possible.
The table below is the 2000/2001 tax table for Australian wage and salary earners. It can be used to work out how much tax a person has to pay. The taxable income is always rounded down to the nearest dollar.
Taxable income Tax payable
$1–$6000 Nil
$6001–$20 000 17 cents for each $1 over $6000
$20 001–$50 000 $2380 + 30 cents for each $1 over $20 000
$50 001–$60 000 $11 380 + 42 cents for each $1 over $50 000
$60 001 and over $15 580 + 47 cents for each $1 over $60 000
3.5 Taxation
Taxable income = total gross income − allowable tax deductions
Sometimes the amount of tax taken out by employers is not enough because the employee has earned extra income from other sources. In this case, the person may have to pay more tax to the government. If, however, the employer has taken out too much tax because the employee is able to claim several tax deductions, then the person may receive a tax refund.
As well as paying income tax, Australians contribute to the cost of funding the public health-care system through the payment of an annual Medihealth-care levy. The table below shows the levy payable by individual taxpayers. The amount payable may also vary according to an
individual’s circumstances.
Example 1
Imelda earns $28 490 as a floor polisher. Last year her employer took out $5290 in PAYG tax instalments.
a Calculate the tax payable.
b Is Imelda entitled to a tax refund or does she have to pay more tax? Explain.
Solutions
a A taxable income of $28 490 falls into the $20 001 to $50 000 tax bracket.
i We first need to calculate by how much this salary exceeds $20 000.
Now, $28 490 − $20 000 = $8490.
ii Tax payable= $2380 + (30c for each $1 over $20 000)
= $2380 + (0.3 × $8490)
= $2380 + $2547
= $4927
b $5290 − $4927 = $363. The amount of tax taken out is $5290, which is greater than the tax payable, $4927.
Therefore, Imelda is entitled to a tax refund of $363.
Example 2
Arjuna earns $56 315 as a construction engineer. In the last financial year he also earned $436 in interest on his savings and he had allowable tax deductions totalling $3720.
a Find the taxable income. b How much tax should he have paid?
c Find the average net weekly income.
Solutions
a Taxable income= total gross income − allowable tax deductions
= ($56 315 + $436) − $3720
= $53 031
Taxable income Medicare levy
$1–$13 807 Nil
$13 808–$14 926 20 cents for each $1 over $13 807
$14 927 and over Flat 1.5% of taxable income
EG+S
EG+S
b i $53 031 − $50 000 = $3031.
ii Tax payable= $11 380 + (42c for each $1 over $50 000)
= $11 380 + (0.42 × $3031)
= $11 380 + $1273.02
= $12 653.02
c i Net annual income= total gross income − tax
= ($56 315 + $436) − $12 653.02
= $44 097.98
ii Average net weekly income= net annual income ÷ 52
= $44 097.98 ÷ 52
⯐ $848.04
1 Use the tax table on page 93 to calculate the tax payable on each annual salary.
a $5200 b $13 000 c $34 750 d $53 345
e $71 260 f $46 863 g $58 758 h $172 510
2 Mr Ford has an annual salary of $56 300. His tax accountant told him that he could claim a total of $2580 in tax deductions.
a Find Mr Ford’s taxable income. b Calculate the tax payable on this income.
■ Consolidation
3 Kurt has two jobs. During the day he works as a builder’s labourer and in the evening he works in a café. As a labourer, Kurt is paid $601.25 per week while the owner of the café pays him $446 per fortnight.
a Find Kurt’s total annual income.
b Calculate the tax payable on this income.
4 After leaving school, Denise got a part-time job working at a service station and was paid a weekly wage of $285. Because she was studying at university in the evenings, Denise was able to claim tax deductions of $744 at the end of the financial year for educational expenses.
a What was Denise’s gross annual income?
b Find her taxable income.
c How much tax must Denise pay on her annual income?
5 As a computer systems analyst, Tim earns an annual salary of $74 300. Last year he earned an additional dividend of $4065 on his share portfolio and $710 interest on his savings. He had allowable tax deductions of $4351.80.
a Calculate Tim’s gross annual income.
b Find his taxable income.
c Find the amount of tax that Tim must pay.
Exercise 3.5
6 Stefan’s gross fortnightly pay is $1610.58. His employer took out $384.60 each fortnight in PAYG tax instalments.
a Find Stefan’s gross annual income. b Calculate the tax payable on this income.
c Is Stefan entitled to a tax refund? If so, how much?
7 Bettina’s gross monthly pay is $4447.08. In the last 12 months she earned interest of
$294.50 on her savings, $2870 on a real estate investment and had allowable tax deductions totalling $385.40. Her employer deducted $985.34 each month in PAYG tax instalments.
a Find Bettina’s gross annual income. b Find her taxable income.
c Calculate the tax payable.
d Will Bettina receive a tax refund or does she have to pay more tax? Explain your answer.
8 Alana’s gross weekly income is $475.48 and she has tax deductions of $412.72. Find:
a her gross annual income b her taxable income
c the tax payable d her net weekly income
9 Find the net fortnightly income on a gross annual salary of $64 312, with allowable tax deductions totalling $2140.
10 Ian’s gross weekly pay last year was $924. At the end of the year he received a 10% pay rise.
a What was Ian’s net weekly pay before the pay rise?
b What was Ian’s net weekly pay after the pay rise?
c By how much has Ian’s weekly take home pay increased?
11 The normal working week for a steelworker is 39 hours at $18.75 per hour, with overtime being paid at the time and a half rate. Last year the steelworker worked 146 hours overtime on top of his regular hours and had allowable tax deductions of $1178.40.
a Calculate his gross income for the year.
b Find the tax payable on this income.
c Calculate the tax refund to which he is entitled if PAYG tax instalments of $168.23 were deducted from his gross pay each week.
12 Doug’s gross fortnightly salary is $1448. At Christmas he receives 4 weeks pay plus a holiday leave loading of 17 %. During the year, he spent $4200 on dental work and was able to claim 20% of this amount in excess of $1250 as a tax deduction.
a Calculate Doug’s gross annual salary including the leave loading.
b Find the taxable income.
c How much tax should Doug pay on this taxable income?
13 Erlinda invested $16 400 and was paid interest on this amount at 6% per annum for the financial year ending 30 June. She was required to declare this interest as part of her taxable income. Erlinda’s gross fortnightly salary is $2209.
a How much interest did she receive on the investment?
b Calculate the amount of tax that Erlinda paid last financial year.
14 Dobey’s monthly salary for the first 6 months of the financial year was $3095.15. He then received a 12% pay rise. How much tax should Dobey pay for that financial year?
1 2
---15 Paula’s gross annual salary is $45 000. Her tax advisor approved the following tax deductions:
• 40% of the cost of a new computer that was purchased for $3570
• $396.20 for stationery
• $572.90 for work-related travel expenses
• $151.75 for dry-cleaning of uniforms
• $384.55 for union fees
a What is the total value of Paula’s tax deductions?
b What is her taxable income?
c Calculate the tax payable on this income.
16 Prior to the reform of the Australian tax system in 2000, a person with an annual income of
$49 000 paid tax of $8942 plus 43 cents for each $1 earned over $38 000.
a Calculate the tax payable on an income of $49 000 under the old tax scale.
b Calculate the tax payable on this income under the new tax scale.
c How much better off per week is a person with this income under the new tax scale?
17 Giselle is paid a weekly retainer of $145.65 plus a 5% commission on the value of her sales.
Last year, Giselle sold books to the value of $652 375. She claimed a total of $2966.30 in tax deductions for the year.
a Find her gross annual income.
b Find the tax payable.
c What was Giselle’s average net weekly pay last year?
18 Individual Australian taxpayers whose taxable income is greater than $13 807 are required to pay an annual Medicare levy to contribute to the cost of public health care. The payment scale is shown on page 94. An additional 1% Medicare levy surcharge is payable by individual taxpayers with a taxable income greater than $50 000 per annum who have not taken out private health insurance with a registered health fund.
Calculate the annual Medicare levy payable on a taxable income of:
a $12 500 b $21 000 c $14 260
19 Harley is an engineer with a taxable income of $95 400. He does not have private health insurance.
a Does Harley have to pay the extra Medicare levy surcharge of 1%?
b How much will he pay altogether for Medicare?
c Would Harley be better off by paying $675 per year for private hospital cover? If so, by how much?
20 Glenda is an industrial chemist with a taxable income of $48 460. Her employer has deducted $185 per week in PAYG tax instalments.
a Calculate the tax payable on this income.
b Calculate the Medicare levy payable on this income.
c How much tax has been deducted from Glenda’s annual salary?
d Is Glenda entitled to a refund or does she have to pay more tax? In either case, state the amount.
21 Dilini has a gross annual salary of $75 484 and last year she earned $4620 in dividends on her shares. She had allowable tax deductions of $725 for work-related travel expenses and
$594 for other expenses. Dilini has top private hospital cover. Her employer deducted
$528.30 in PAYG tax instalments each week from her gross pay.
a Find her taxable income.
b Calculate the amount of tax that she should pay on her income.
c How much should Dilini pay for Medicare?
d Is Dilini entitled to receive a tax refund? If so, how much?
■ Further applications
22 Find the taxable income of an employee who paid the amounts below in tax. (Ignore the Medicare levy.)
a $1598 b $4870 c $13 358.20 d $31 847.64
23 Victor earns a regular hourly rate of pay for working 35 hours per week as an electrician and is not eligible to earn overtime pay. In the previous financial year he paid $14 160.40 in tax and also paid a Medicare levy. He had total tax deductions of $3790.35 and does not have private health insurance. Find:
a his taxable income b the Medicare levy c his hourly rate of pay
A budget is an organised spending plan based upon a person’s net income. It is important to work out your spending habits and make an accurate budget so that you have enough money at hand when bills come in. Some bills vary a lot at different times of the year and unexpected expenses may also occur. It is wise to save as much money as you can so that you are not caught out.
Example
Helen has just moved out of home. She has a net income of $540 per week as a video technician and spends of her income on food. Helen has created this weekly budget to manage her finances.
a How much does Helen spend on food each week?
b How much money does she save each week?
c What percentage of her income does Helen spend on rent, correct to 1 decimal place?
d If Helen’s budget was represented on a sector graph, what would be the central angle in the ‘clothes’ sector?
3.6 Budgeting
Item Weekly expenses
Rent $160
Car loan repayment $125
Petrol $35
Food
Clothes $30
Entertainment $45
Savings EG+S
1 9
---Solutions
1 Partima has a net weekly income of $410. She has formulated a weekly budget plan in order to manage her money.
a How much does Partima save each week?
b Partima pays the rent on a fortnightly basis.
How much rent does she pay each fortnight?
c What percentage of her net income does she spend on food? Answer correct to the nearest whole percentage.
2 Kendra earns $572 per week after tax. She lives alone and has just bought a new car on terms.
She sets aside equal amounts of money for bills and entertainment.
a How much does Kendra set aside for bills?
b What are her annual expenses for rent?
c What percentage of her income does Kendra save? Answer correct to the nearest whole percentage.
3 Reggie shares a house with 3 friends. They pay
$320 per week in rent and share equally the payment of the rent and all bills. This year they estimate that the bills will amount to approximately $2080.
a How much does Reggie contribute each week for: i rent? ii bills?
b What is Reggie’s net weekly income?
c What fraction of his income is spent on food?
d How much more does Reggie spend on rent than on entertainment?
Car loan repayment $76
Petrol $42
■ Consolidation
4 Stuart lives at home with his parents. He goes to university at night and works as a storeman and packer by day. He pays 30% of his net income to his parents for food and board.
a What is Stuart’s net weekly income?
b He budgets $10 more per week for
entertainment than for his university expenses.
How much does he budget for each item?
c If this budget was to be shown on a sector graph, what size would the central angle be for savings?
d Stuart received a pay rise of 12% and he decided to split this extra amount between what he spends on clothes and what he pays for food and board. How much will he spend on clothes after the pay rise?
5 Virgil constructed this sector graph to illustrate his weekly budget.
a Virgil spent twice as much on food as he did on transport. What angle should be shown for each of these sectors?
b What fraction of his weekly income does Virgil spend on clothes?
c Virgil pays $225 per week in rent. Find his net weekly income.
d Is this a good budget? Explain.
6 Anthea has a net annual salary of $27 300. She has weekly expenses of $17.50 for health insurance, $37 for petrol and $80 for food. She pays $480 per fortnight for rent and $78 per month for car insurance. She wants to allow $75 per week for savings. Draw up a weekly budget for Anthea, with the remaining money being divided equally between savings and
‘other expenses’.
7 Brett earns $16.50 per hour after tax for a 36-hour week. He pays $354 each fortnight for
7 Brett earns $16.50 per hour after tax for a 36-hour week. He pays $354 each fortnight for