Tax Return:: TFN + ABN: How to Calculate Your Tax Refund/Payable
Hello, this is your tax and super specialist, P&C Tax Professionals.
As you know from our previous blog post on “PAYG Instalment”, there is a significant difference between earning income with your TFN and earning income with your ABN. This is because unlike people who work with their TFN, ABN holders do not have an employer who will withhold the tax for them during the income year, hence they do not have any tax withheld from the income they earned with their ABN. Therefore, in today’s blog post we will go through a couple of examples on how your tax refund or payable amount is calculated as someone who has both TFN and ABN income.
To get the full list of the individual income tax rates for residents, small business tax offset rates and the updated new Low and Middle Income Tax Offset (LMITO) rates, please refer to our previous blog posts:
Individual income tax rates: https://en.pnctax.com.au/single-post/tax-return-2022fy-individual-income-tax-rates
Small business tax offset rates: https://en.pnctax.com.au/single-post/tax-return-2022fy-small-business-income-offset
Updated new LMITO rates: https://en.pnctax.com.au/single-post/tax-return-updated-2021-2022fy-low-and-middle-income-tax-offset-lmito
<Example 1: Working Holiday Maker / Taxable Income = $0 ~ $45,000>
Alice’s year to date gross income from her employers for the 2022 financial year is $11,000 (tax withheld from this income = $1,650). During the 2022FY, she also had income which she earned with her ABN of $26,000. Alice has work-related deductions for the work she has carried out with her ABN totalling $790 for the 2022FY. With the information we have, her estimated tax payable amount can be calculated as follows:
Taxable Income = $11,000 (TFN income) + $26,000 (ABN income) - $790 (work-related deductions)
Taxable Income = $36,210
Tax Payable on Taxable Income = $36,210 x 15% = $5,431.50
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Less Offsets:
Small Business Income Offset:
= $3,781.50
Small business income offset = $3,781.50 x 16% = $605.04
Low Income Offset = $700
Low and Middle Income Offset = $675
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Plus Medicare Levy:
Medicare Levy = $0
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Less Credits:
Tax withheld – salary & wage type income = $1,650
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Estimated Tax Payable = $5,431.50 (Tax Payable on Taxable Income) - $605.04 (Small business income offset) - $700 (Low Income Offset) - $675 (Low and Middle Income Offset) + $0 (Medicare Levy) - $1,650 (Tax withheld)
Estimated Tax Payable = $1,801.46
<Example 2: Student / Taxable Income = $45,001 ~ $120,000>
Zach’s year to date gross income from his employers for the 2022 financial year is $22,120 (tax withheld from this income = $2,654). During the 2022FY, he also had income which he earned with his ABN of $52,000. Zach has work-related deductions in relation to the work he has carried out with his ABN totalling $680 for the 2022FY. With the information we have, his estimated tax payable amount can be calculated as follows:
Taxable Income = $22,120 (TFN income) + $52,000 (ABN income) - $680 (work-related deductions)
Taxable Income = $73,440
Tax Payable on Taxable Income = $5,092 + [($73,440 - $45,000) x 32.5%] = $14,335
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Less Offsets:
Small Business Income Offset:
= $10,017.32
Small business income offset = $10,017.32 x 16% = $1,602.77
* However, the small business income offset only allows you to reduce your tax liability up to a maximum of $1,000. Hence, Zach will only be able to claim the maximum small business income offset of $1,000.
Small business income offset = $1,000
Low Income Offset = $0
Low and Middle Income Offset = $1,500
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Plus Medicare Levy:
Medicare Levy = $0
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Less Credits:
Tax withheld – salary & wage type income = $2,654
--------------
Estimated Tax Payable = $14,335 (Tax Payable on Taxable Income) - $1,000 (Small business income offset) - $0 (Low Income Offset) - $1,500 (Low and Middle Income Offset) + $0 (Medicare Levy) - $2,654 (Tax withheld)
Estimated Tax Payable = $9,181
<Example 3: Australian Citizen / Taxable Income = $0 ~ $18,200>
Liam’s year to date gross income from his employers for the 2022 financial year is $5,010 (tax withheld from this income = $0). During the 2022FY, he also had income which he earned with his ABN of $12,000. Liam has work-related deductions in relation to the work he has carried out with his ABN totalling $200 for the 2022FY. With the information we have, his estimated tax payable amount can be calculated as follows:
Taxable Income = $5,010 (TFN income) + $12,000 (ABN income) - $200 (work-related deductions)
Taxable Income = $16,810 (Below the tax-free threshold of $18,200)
Tax Payable on Taxable Income = $0
--------------
Less Offsets:
Small Business Income Offset:
= $0
Small business income offset = $0 x 16% = $0
Low Income Offset = $700
Low and Middle Income Offset = $675
--------------
Plus Medicare Levy:
Medicare Levy = $0
--------------
Less Credits:
Tax withheld – salary & wage type income = $0
--------------
Estimated Tax Payable = $0 (Tax Payable on Taxable Income) - $0 (Small business income offset) - $700 (Low Income Offset) - $650 (Low and Middle Income Offset) + $0 (Medicare Levy) - $0 (Tax withheld)
* The tax offsets will reduce the tax payable on taxable income to $0 but it cannot help you to increase your tax refund amount. Therefore, even if Liam has tax offsets that adds up to $1,375, since his tax payable on taxable income is $0, he cannot use the offsets to increase his tax refund.
Estimated Tax Payable = $0
That’s all for now but if you have any other questions or enquiries you would like to make, please contact us through our official Facebook Page (P&C Tax Professionals – Australia) or simply send them to our email address at pnctax@naver.com.
Thank you and bye for now!
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