Crash tax course to ease bracket creep burden
ESCAPING death and taxes may be impossible but you can minimise tax time shocks through preparation.
It’s worth understanding how the Australian Taxation Office’s tax brackets work, just so you know where you stand.
Carbon Group partner Michelle Maynard said your rate was carefully calibrated on a sliding scale.
“Get comfortable with the idea that the tax bracket’s going up,” she said.
“It’s not the whole amount that’s going to get taxed higher. A lot of people say ‘I’m not going to do overtime or the taxman will take half ’. Well, they won’t. They’ll take a bit more of the larger portion.
“But normally your taxes pretty much remain the same. So you’re doing yourself a disservice by not earning extra money, because it’s more money that you will get in your pocket.”
Ms Maynard said it was wrong to assume that the minute you crossed a tax threshold, all your income would be taxed more.
The higher rate only applied to the overshoot, she said.
And aside from the low-end $37,000-plus threshold where you go from paying 19c in the dollar to 32.5c, the rise was small, she said.
“And because it is only a small percentage, you’re cutting off your nose to spite your face if you’re not earning,” Ms Maynard said.
Mawer Consulting tax agent and director Greg Mawer framed the tax system as “complex” but “progressive”.
Set at zero per cent for low income up to $18,200, the tax rate rises gradually to 45 per cent for every extra dollar earned by Australians making $180,000-plus.
“Each year many Australian taxpayers experience bracket creep,” Mr Mawer said.
He said another tax misconception was around deductions.
Donate a dollar and you do not get one back. Instead, your taxable income dropped by the amount donated, Mr Mawer said, which meant donations were less “tax-advantageous” than many thought.
Many of his clients donated to bushfire appeals.
“More than one was under the impression that if they donate a dollar, they will get a $1 higher refund at tax time – 100 per cent back,” Mr Mawer said. “This is not the case.”
Tax thresholds are set to rise over time through a threestep, seven-year plan in which many workers will pay less income tax.
“This helps to ease the burden of bracket creep on everyday Australians,” Mr Mawer said.