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Australia Income Tests Guide

the Australian income tests used for the tax offsets, the benefits and the surcharges. The guide covers: the income for the MLS purposes (the "MLS income test") — the income for the Medicare levy surcharge (the "MLS income") includes: (a) the "taxable income", (b) the "reportable fringe benefits amounts", (c) the "total net investment losses" (the "net rental losses" and the "net financial investment losses"), (d) the "reportable superannuation contributions" (the "salary sacrificed contributions" above the $30,000 threshold); the MLS income determines the MLS tier (the "Tier 1 at $93,000, the Tier 2 at $108,000, the Tier 3 at $144,000"); the SAPTO income test (the "senior and pensioner offset test") — the SAPTO eligibility depends on the "rebate income" which includes: (a) the "taxable income", (b) the "reportable fringe benefits amounts", (c) the "total net investment losses", (d) the "reportable superannuation contributions"; the SAPTO phases out at the rate of 12.5 cents per dollar above the SAPTO threshold (the "$32,279 for the single" and the "$28,974 for each member of the couple"); the family assistance income test (the "Family Tax Benefit and the Child Care Subsidy") — the family assistance payments (the "Family Tax Benefit Part A and Part B" and the "Child Care Subsidy") use the "adjusted taxable income" which includes: (a) the "taxable income", (b) the "reportable fringe benefits amounts", (c) the "total net investment losses", (d) the "reportable superannuation contributions", (e) the "foreign source income" and the "net rental losses"; the "family income" is the combined income of the two parents; the superannuation contributions income test (the "income for the super contributions") — the "income for the super contributions purposes" (the "div 293 income") includes: (a) the "taxable income", (b) the "reportable fringe benefits amounts", (c) the "total net investment losses"; the "Division 293 tax" of 15% applies to the concessional super contributions (the "employer SG and the salary sacrifice") when the div 293 income exceeds $250,000.

Income Components in Detail

  • Taxable income: The "taxable income" is the assessable income minus the deductions (the "work-related expenses, the investment expenses, the rental expenses"). The taxable income is the starting point for all the income tests. The taxpayer can reduce the taxable income through the claiming of the deductions, which may affect the eligibility for the offsets and the benefits.
  • Reportable fringe benefits amounts: The "reportable fringe benefits amount" is the "grossed-up taxable value" of the non-cash benefits provided by the employer (the "car, the housing, the school fees"). The amounts above the $2,000 threshold must be reported on the "payment summary" and included in the income tests. The FBT paid by the employer on the fringe benefits is not included.
  • Total net investment losses: The "total net investment losses" are the excess of the investment expenses over the investment income (the "net rental losses" from the negatively geared property and the "net financial investment losses" from the margin loans and the managed funds). The losses are added back to the taxable income in the income tests, which may push the taxpayer into the higher MLS tier.

For the negative gearing and the rental property losses, see our Rental Property Expenses Guide →.

Strategic Considerations

  • Managing the income for the MLS: The taxpayer whose income for the MLS purposes is close to the MLS threshold may be able to manage the income through: (a) reducing the "reportable superannuation contributions" (the "salary sacrifice amount"), (b) reducing the "net investment losses" (the "negatively geared property" or the "margin loan" losses), (c) increasing the "taxable income" through the reduced deductions.
  • Family income estimation: The family with the children should estimate the "adjusted taxable income" for the family assistance purposes regularly (the "family income estimate"). The overestimate may result in the underpayment of the Family Tax Benefit — the family must repay the excess at the reconciliation time. The underestimate may result in the lower payment during the year.
  • Division 293 income threshold: The high-income earner with the concessional super contributions (the "SG at 11.5% plus the salary sacrifice") should monitor the "div 293 income" in relation to the $250,000 threshold. The excess contributions above the threshold are taxed at the additional 15% (the "div 293 tax"). The taxpayer can opt to pay the div 293 tax from the personal funds or the super fund.

For the Division 293 tax and the super contributions rules, see our Superannuation Guide →.