Answers to How much do you know about tax

If you earn A income you get B refund of your tax.

False. Your tax refund (or tax payment owing) is the net figure between Tax Payable (incl Medicare) + HELP repayment (if applicable) less any offsets and tax paid on your behalf.

For example if you had $10,000 interest income verses $10,000 employment income your refund would probably be different (as your boss might have withheld some of your salary)

If you earn X taxable income you pay Y tax .True or False?

True. Tax on Taxable Income is calculated based on Taxable Income.

If you are in the 30% tax bracket you pay 30% tax on your taxable income? True or False?

False. Tax is marginal so you pay (on 2010 rates) $0 on the first $6,000, 15% from $6,001 to $35,000, 30% from $35,001 to $80,000, 38% from $80,001 to $180,000 and 45% above $180,000.

So you would pay less tax on average. For example (on 2010 rates) $50,000 taxable income means $8,850 you would pay 17.7% average tax.

You can earn $10,000 and not have any net tax (*Net tax meaning tax less tax offsets)? True or False

True. The low income tax offset (currently $1,200 for 2009 year) is applied automatically by the ATO when you lodge your return), will offset your Tax on Taxable Income to nil.  Note this is a non-refundable offset (i.e. it will reduce your tax but you will never get it back in cash)

If you have a deduction of X your tax refund will increase by X? True or False

False. A deduction reduces taxable income. You will only get Deduction x Marginal Tax Rate = Tax Back.

For example I spent $100, my marginal rate is 30%, I’d get an extra $30 refund.

If you buy a computer for $2,000 you can claim it as a deduction this year? True or False

False – Because a computer is an asset – you can only claim it over a few years (assume you use it for a tax deductible purposes like work/your business). A computer is deemed to have an effective life of 3  or 4 years – so you could claim over that time.

If you make a loss on your rental property (i.e. negative gearing)–  you get a lower tax refund if you are on a lower tax bracket? True or False

True – You get less of a tax refund (as you are paying less tax). I.e. If you have a $5,000 rental loss your tax will be reduced by 45% 2,250, 40% – $2,000, 30% – $1,500, 17% – 850, 0% – nil.

You only pay Medicare if you earn over a certain amount and don’t have private health insurance? True or False

False – This is true for Medicare Levy Surcharge (1% of taxable income).

Medicare Levy is 1.5% and is charged if you earn above 17k (it is charged on a sliding scale until $20k)

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