Lesson 3 - Income tax
Introduction
In this lesson you will:
learn about pay slips
calculate net income
explore income tax rates.
Activity 1 - Taxes and net income
The Australian Taxation Office (ATO) collects taxes for the Australian Government. The taxes we all pay fund community services such as:
Health care
Education
Emergency services
Roads and train lines
The Australian Defence Force
Welfare and disaster relief
The services we all value rely on everyone paying the right amount of tax.
When your employer pays your salary or wage, they take out tax and send it to the Australian Taxation Office (ATO). Your payslips will show how much tax has been taken out.
Some employers deposit your pay into your bank account, but others will pay you cash. Either option is okay, so long as they take the right amount of tax from your pay and send it to the ATO. Your employer is also required to pay superannuation into a super fund you nominate. Your payslips will show how much tax and super your employer contributes.
Note: Superannuation is there to help you save for when you retire (stop working).
Click on the image to visit the Why we have tax page on the ATO website.
Watch the video called Village and the boy named Tax.
Watch this video.
Gross income vs net income | Explainer Video
Duration: 0:45
Example:
Sam earns wages of $900. Tax and other deductions are $250.
So, Sam’s gross income is $900 and net income is $650.
Activity 2 - Reading pay slips
Task 1
Watch a YouTube video on How to Read Your Payslip.
Task 2 - Applying your understanding
Use the Reading a play slip activity Google Doc to demonstrate your ability to read and understand a payslip.
Click on the button to open a new tab and view the Google Doc.
Click on the Use Template button to create a copy for you to edit.
How to read your first PAYSLIP (Australia edition)
Duration: 6:11
Task 3 - Jobs you are interested in.
Using the tax withheld calculator from the ATO, research the weekly wages earned for some jobs/careers you are interested in to see how much tax is paid on these incomes each week.
Activity 3 - Calculating net income
Employees can ask their employer to deduct some regular expenses from their pay before it goes into their bank account. These are known as deductions.
Some of the types of items include:
union fees
health insurance payments
extra superannuation payments etc.
These items are subtracted from your gross income along with the tax payment.
Example scenario
Helen, who we met in Lesson 1B, works as a childcare worker.
She earns $1309.50 per week.
She has the following deductions taken from her pay each week: tax of $269, union fees of $20 and car loan repayment of $100.
Calculate Helen’s net income.
Task
Now it’s your turn to have a go. Work out the net income for this scenario. Don’t forget to start by highlighting the keywords that will help you with your calculations.
Activity 4 - Income tax rates
In Australia, the Australian Taxation Office publishes resident tax rates for the current financial year. A financial year is from 1 July to 30 June.
The current 2021-22 financial year resident tax rates are displayed in Table 1. Graph 1 gives you another way to look at the information in Table 1.
Table 1
If you look at the different coloured sections, you can see that the graph is made up of straight lines with different slopes (gradients).
These sections represent each of the taxable income tax brackets, for example Section 1 you pay no tax, so the gradient is 0 and Section 2 you pay 19 cents for each $1 earned over $18,200 so the gradient for this bracket is 0.19.
Our tax system is known as a progressive tax system.
Graph 1
Task 1
Watch the video, How Tax works in Australia to learn how progressive tax works.
How Tax works in Australia
Duration: 0.42
Task 2 - Exploring progressive tax in more detail
Open the Desmos interactive, Calculating Income Tax, in a new tab by clicking on the image. If the folder tab is open on the left hand side of the screen close it so you can see the graph in full screen.
Drag the orange point along the horizontal axis to find your income amount. The amount of tax you need to pay will show up on the vertical axis and the colours show you which tax bracket you belong in.
Complete the following questions in your exercise book or folder.
Use the graph to the find the amount of tax you will pay for the following incomes:
$40,000
$60,000
$140,000
$200,000
$70,000
Let’s now investigate what happens when someone receives a pay rise and moves into another tax bracket.
Sarita currently earns $44,000 per year as a medical receptionist. Recently her pay has increased due to Sarita completing further studies related to her job. Sarita’s new yearly income is $48,000. Calculate the tax payable on each income amount to decide if Sarita is better off after her pay rise.
Activities too hard?
Explore your understanding of the GST by completing these activities in Stage 4 Maths Week E Lesson 1 - Introducing the Goods and Services Tax (GST).
Activities too easy?
To accurately calculate the amount of tax you need to pay, you need to use the tax table directly, understand the definition of taxable income and add on your Medicare levy of 2%.
Complete the task on calculating tax payable from the tax table using the Google Doc.
Click on the button to open the activity and then use the template button to create a copy of the Google Doc.
Handing in your work
Don't forget to hand in the work you completed today!
Your teacher will have told you to do one of the following:
Upload any digital documents you created and any photos you took of your written work to your Learning Management system (MS Teams, Google Classroom for example).
Email any digital documents you created and any photos you took of your written work to your teacher.
Make sure you keep any hand written work you did in your exercise book or folder as your teacher may need to see these when you are back in class.