PERSONAL TAX OFFSETS/REBATES
MASTER TAX GUIDE
INCOME TAX LAW
TAXPACK PAGES 77-97 and S42 – 60
Deductions are subtracted from the assessable income to arrive at the gross taxable income.
Tax offset are subtracted from the gross tax calculated on the taxable income.
Therefore to arrive at net tax payable/receivable, the formula is:
LESS Allowable Deductions
EQUALS Taxable Income (marginal tax rates are applied to this amount)
EQUALS Primary Tax Payable
LESS Allowable Tax Offsets/Rebates
PLUS Medicare Levy (if applicable at either 1.5% or 2.5%)
EQUALS Gross Tax Payable
LESS Credits allowed for any tax instalments paid
EQUALS Net Tax Payable/Receivable
A rebate is more valuable to the taxpayer than a deduction, as the taxpayer is allowed the full amount
(dollar for dollar), for any allowable rebate against the gross tax payable.
Were as an allowable deduction is proportional to the taxpayers marginal tax rate.
Generally the total sum of all tax offsets cannot exceed the amount of tax that would have been payable.
Most tax offsets (excluding Private Health Insurance tax offset) cannot be offset against any Medicare
levy or superannuation contribution surcharge, nor can any excess offset be carried forward into future
Refer to Master Tax Guide paragraph 15-000 to 15-005 & 42-165 for a full list of tax offsets and
There are 4 categories of offsets:- 1. Dependant tax offsets
2. Offset depending on source and level of income
3. Offset for certain expenditure
4. Zone and overseas forces offset
1. DEPENDANT TAX OFFSET
MTG 15-020 to 15-050
When a resident taxpayer contributes to the maintenance of one or more dependants, then they may be
entitled to the dependant tax offset.
Generally the rebate is only allowable for dependants that are Australian residents. The dependant
spouse and children of the taxpayer are usually treated the same as the taxpayer for residency.
The rebate covers:-
Spouse- Both legal and de facto, but excludes same sex partners
(Max rebate $2,159) No rebate is available if family assistance payments are received
No rebate available if Separate Net Income exceeds $8,917
Invalid relative - Must be over 16 years old, and a child of the taxpayers
(Max rebate $792) Must be in receipt of the disability support pension
No rebate available if Separate Net Income exceeds $3,448
Parent - Wholly engaged by the taxpayer to care for a parent/parent in law.
(Max rebate $1,583) No rebate available if Separate Net Income exceeds $6,614
Child Housekeeper - Taxpayer claiming the rebate must be a widow/widower
(Max rebate $2,108 Child must be of the taxpayers, and wholly engaged in ‘keeping house’
with notional child) for the taxpayer
(Max rebate $1,759
When the dependant earns ‘separate net income' the maximum rebate claimable by the taxpayer is
reduced by $1 for every complete $4 by which the separate net income exceeds $282.
Spouse and childkeepers rebates are denied/reduced for any period where the taxpayer or the taxpayers
spouse is entailed to Family Tax Benefit (FTB) Part B. Eligibility to FTB Part A does not affect the
taxpayers entitlement to spouse rebate.
EXAMPLES OF DEPENDANT REBATES
1. Ben has a dependant spouse (no children) with SNI of $9,200. Therefore he is not entitled to
2. Fred has a dependant spouse (and no children) with SNI of $1,082. He can claim the following
Maximum rebate for whole year:- $2,159
Reduction for SNI $1,082-282 = 200
Total Rebate Fred can claim is : 1,959
3. Sam has a dependant spouse with SNI of $2,000. A child was born on the 24th September 2008,
and Sam is entitled to claim FTB Part B:-
Maximum Rebate for whole year of $2,159 is to be reduced, can only claim rebate for
period 1 July 2007 – 23 September 2007
($2,159 x 85/365) = $502
Reduction for SNI $2,000 – 282 = (429)
4. Jan became a fully dependant spouse of Steves on the 15th February 2010. Jan earned SNI of
$12,000 for the year ended 30th June 2009, of which $9,000 was earned prior to 15th February.
Maximum Rebate for whole year of $2,159 is to be reduced, can only claim rebate for
period 15th February 2010 – 20 June 2010
($2,159 x 137/365) = $810
Reduction for SNI $3,000 – 282 = (679)
What is Separate Net Income (SNI) - MTG 15-060
Includes:- both assessable and exempt income.
child care expenses, if spouse is working
travel to and from work
Excludes:- imputation credits and DSS payments
non- business expenses and prior year losses.
The dependant rebate can be claimed annually through the taxpayers income tax return, or can have the
amount of tax withheld reduced through the PAYG withholding system.
Partial year claims
A proportionate rebate must be calculated where:-
A person is a dependant for only part of the year
The dependant is a resident for part of year
The dependant is maintained for only part of year
More than one person contributes to the maintenance of a dependant
Any SNI earned prior to becoming a dependant is ignored in calculating a partial dependant rebate.
2. OFFSET DEPENDING ON SOURCE AND LEVEL OF INCOME
LOW INCOME REBATE MTG 15-140
Applies to all resident taxpayers whose taxable income is less than $30,000. Maximum rebate available
The rebate reduces by 4c for each dollar over $30,000, therefore it phases out when taxable income
The formula used to calculate the rebate is: $1,200 - (Taxable Income - $30000) x 0.04
Taxpayer has taxable income for 2009/10 of $31,250. Calculate the maximum rebate available to
$1,350 – (($33,250 – 30,000) x 0.04)
$1,350 - $250 = $1,100
SENIOR AUSTRALIANS TAX OFFSET
(Low Income Aged Persons Rebate)
To be eligible for the above offset low income taxpayers (pensioners and self-funded retirees) must
satisfy the following conditions:-
1. Must be over 65years of age (male) and 63 (female) or a war veteran/widower over
60 (male) and 58(female) then they may be eligible for the offset.
2. Received a Commonwealth age pension or war veteran pension
3. Taxable income :-
Less than $28,867 (single) and reduces by 12.5c up to $46,707 (max. offset $2,230)
$24,680 (married living together) up to $37,496 each (max. offset $1,602 each)
$27,600 (married living apart) up to $43,920 each (max. offset $2,040 each)
4. You were not in prison for the whole year.
MATURE AGE TAX OFFSET
This offset is available to working taxpayers who:-
a. are aged 55 years and over by 30 June, and
b. net working income is less than $63,000 for the year
The maximum offset is $500.
The offset will start to phase out at 5% from $53,000. With no offset available when net working
income exceeds $63,000
This does not apply to taxpayers who are eligible for the Senior Australians Tax Offset.
The taxpayer must be 65(male) and 63 (female).
The rebate allows the eligible taxpayers to have a certain amount of income in addition to their
pension, without being liable for tax.
A single pensioner may earn $20,934 in additional income up to the threshold of $38,854.
Maximum rebate $2,240
A married pensioner may earn $17,327 each in additional income up to the threshold of $30,919
each. Maximum rebate $ 1,699 each
A married pensioner living apart may earn $19,907 each in additional income up to the threshold
of $36,595 each.
Maximum rebate $2,086 each
In each situation the rebate is reduced by 12.5cents for each dollar over the minimum income level
INCOME ARREARS REBATE
If an individual taxpayer receives certain income in a lump sum payment which represents amounts
that have been accrued in earlier years, they may be entitled to a tax rebate.
The rebate is the difference between the extra tax that is payable in the year of receipt and the tax
that would have been paid is the lump sum had been taxed as it accrued.
To be eligible for the rebate the lump sum that accrued must be at least 10 of the other taxable
income in the year of receipt.
Other taxable income is taxable income less
- accrued eligible income
- Accrued payments for long service leave and annual leave
- Net capital gains
- Return to work payments
Eligible income for the rebate:-
a) salary/wages accrued for more than 12 months
b) Commonwealth educational and training payments
c) assessable pensions, benefits and allowances
REBATES ON ETP - Sec 159SA REBATE
A special rebate applies to limit the amount of tax that is payable on various components of an
Eligible Termination Payment.
In other words the taxpayer is entitled to a rebate between the marginal tax rate applicable to their
taxable income and the maximum tax rate as set by the ATO for the ETP component.
For example:- Taxed element on a post June 83 component for a taxpayer under 55 is 20%,
Taxpayers' marginal tax rate is 42%,
Taxpayer is entitled to a rebate of 22%, on the ETP component
Calculation of rebate is as follows:-
1. Tax on total taxable income at taxpayers' marginal tax rate
2. LESS Tax on *notional income at taxpayers' marginal tax rate
EQUALS Tax on lump sum at taxpayers marginal tax rate
3. LESS Tax on lump sum at the applicable concessional rate
EQUALS Section 159A ETP Rebate
*Notional Income = Total of all taxable income excluding the ETP concessional component
Taxpayer under 55 years of age receives an ETP from a complying superannuation fund,
comprising of a post 30 June 1983 taxed component representing $40,000. Other assessable
income is $60,000, giving a total taxable income of $100,000. Calculate tax payable/refund
including ETP rebate.
Rebate is calculated as follows:-
Tax on taxable income $100,000 at marginal rates $27,850
Less tax on notional income ($60,000) at marginal rates 13,350
Equals Tax on lump sum income ($40,000) at marginal rates 14,500
Less tax on lump sum income ($40,000) at concessional rates (20%) 8,000
ETP Lump Sum Rebate on $40,000 6,500
Tax on taxable income $27,850
Add Medicare Levy 1,500
(1.5% x $100,000) 29,350
Less ETP Rebate 6,500
3. OFFSET FOR CERTAIN EXPENDITURE
MEDICAL EXPENSE OFFSET
MTG 15-150 to 15-155
A rebate is available to all taxpayers whose net medical expenses in the income year exceed the
threshold. The current year threshold is $1,500.
The rebate is calculated as 20% of the excess.
The medical expenses must be paid by the taxpayer for himself or his dependants.
All full list of eligible medical expenses is found on page 15-155 of your MTG
During the year Mrs C spent $5,000 on medical treatment for her family. She received $2,000 in
reimbursements from Medicare and Medibank private. What is the rebate available.
Gross expenses:- $5,000
Less reimbursement 2,000
Net medical expenses 3,000
Rebate equals $3,000 – $1,500 x 20% = $300
30% PRIVATE HEALTH INSURANCE OFFSET
Any payment to a registered private health insurance company is eligible for a 30% offset.
The offset can be claimed at time of payment of the insurance policy, through a reduced premium,
or annually through the income tax lodgement system.
This is a refundable offset, and is not limited to the amount of the tax otherwise payable
ZONE OFFSET - MTG 15-270
There is a special rebate for taxpayers living in isolated areas of Australia (Zone A or B), and
defence personal living is specified overseas locations.
The taxpayer must satisfy one of the residency tests to be eligible. MTG 15-280.
The amount of offset available depends on the area where taxpayer is residing
Total Offset Available
Zone A or Zone B special area $1,173 plus 50 of total dependant rebates
Zone A Ordinary $338 plus 50 of total dependant rebates
Zone B Ordinary $ 57 plus 50 of total dependant rebates.
Special Forces $338 plus 50 of total dependant rebates
IMPUTATIION CREDITS AND FOREIGN TAX CREDITS
MTG 21-670 and 21-760
When an Australian resident taxpayer receives income from foreign sources it is generally assessable.
A tax credit is also allowable for any foreign tax paid on the foreign income, but is limited to the
amount of Australian tax paid on the said income.
Where the foreign tax credit exceeds the Australian tax to be paid an excess foreign tax credit arises.
This excess tax credit can be carried forward for a maximum of 5 years to be used against any tax
payable on future foreign income.
COMPLETE THE FOLLOWING QUESTIONS FROM YOUR TEXTBOOK:
11.1 – 11.3,
11.11 - 11.12,
11.28 – 11.32,
11.33 – 11.34
LEARNING ACTIVITY 1
Ms Chung has assessable income during the year consisting of :-
Exempt pension $ 50
Donations $ 30
Calculate – Taxable income
- Separate net income
- The maximum dependant rebate for no other dependants
Assume Ms Chung was a dependant for the whole year.
LEARNING ACTIVITY 2
Calculate the maximum rebates available for each situation:-
a. H married W on 1 April. They have no dependants and did not live in a defacto relationship prior
to marriage. W derived Separate Net Income of $18,000 for the year of which $17,000 was earned
prior to the marriage.
b. Jan worked for one month earning $1,282. For the remaining of the year she did not work. She
was fully dependant on her spouse. They have no dependant children.
c. Sue and Sam both care and contribute to the care of their mother who has no separate net income.
During the year sue contributed $1,500 and Sam contributed $500.
LEARNING ACTIVITY 3
Mr Symes is married with 2 dependant children. His mother-in-law and invalid brother live with him.
His wife has no separate income, but received $2,500 FTB Part B. His brother receives no income. His
mother-in-law receives a pension of $150 per week full the full year.
The following medical expenses were incurred by Mr Symes (after refunds):-
Self $ 500
Spouse $ 900
Children $ 600
Mother-in-law $ 400
Mr Symes has Gross assessable income of $25,000 allowable deductions of $530 and PAYG
instalments paid during the year of $1,800
Calculate his tax lability.
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Answers to Learning Activities
1. Assessable Income Salary $520
Allowable Deductions Donations 30
Taxable Income $590
Separate Net Income = Salary $520
Exempt Income 50
Maximum rebate for no dependants $2,159 – (670-282) = $2,062
a. Reduced Rebate entitlement due to part year dependency.
$2,159 entitled for full year therefore only entitled for 91 days (1 April to 30 June)
$2,159 x 91/365 = $538.27
As separate net income exceeds $282 the rebate is reduced.
$1000-282 = $179.50
Maximum rebate is $538.27 - $179.50 = $358.77
b. Jans spouses maximum rebate = $2,159– (1,282-282)
= $2,159 – $ 250
c. The rebate is apportioned accordingly
Sue 1,500 x $ 1,583 = $ 1,187
Sam 500 x $1,583 = 396
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3. Assessable Income $25,000
Less Allowable Deduction 530
Tax payable on $24,470 2,770.50
Less Tax offsets/rebates
Spouse 0 Parenting allowance has been received.
Invalid Brother 792 As no income is received by dependant brother
Mother-in-law 0 Mother-in-laws income is $7,800 which exceeds
the cut-off limit of $6,614
Low income Rebate 1,200 Full rebate – under $30,000 threshold
Medical Expenses 400 2,392.00 ($500+$900+$600+$1,500)-$1,500 x 20%
Plus medicare 0 Below low income threshold
Less PAYG instalments 1,800.00
1,421.50 TAX REFUNDABLE
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