Moom's Taxes 2011-12 Edition

After doing Snork Maiden's taxes my final investment tax statement arrived and I could do my taxes:

It's a huge contrast to my 2010-2011 taxes (Follow through to earlier years and it is even more dramatic):

• My salary has almost tripled.
• Interest is almost 10 times as high.
• Foreign source income is a fraction of what it was (2010-11 included foreign employment income).
• Deductions are similar though I am now attributing some expenses to my mutual funds which I previously attributed entirely to stock investments.
• Gross tax has quadrupled and net tax is about 6 times higher with almost three times the tax rate, now at 29.51%.

I'm expecting a rather small tax refund, barely offsetting the extra tax that Snork Maiden owes. I used to get massive refunds. I actually used up some of my CGT loss carry-forward this year, taking it down from $82k to $80k! That's a tax asset worth about $30k, which we don't include in our regular net worth spreadsheets. Maybe I should.

Snork Maiden's Taxes 2011-12 Edition

I've more or less finished Snork Maiden's tax return for this year (Australian tax year ends on 30th June) but I can't submit it till I do my tax return. This is because they need to know my income in order to compute the correct Medicare Levy (tax that supposedly funds health care). For households earning more than $A160k per year without private health insurance the rate is 2.5%. That includes us. I've thought of getting private health insurance but it doesn't seem to save much money in net and just sounds like an extra hassle. Maybe it's because I've never really understood how the Australian medical system works. I am still waiting for one final investment statement for last year before I can do my taxes. The deadline is 15th October.

Anyway, so here is Snork Maiden's summary for this year:

 

For comparison, here are last year's taxes. There have been some changes in categories reported on this year's tax return and some big changes in her deductions but otherwise there has been fairly minor increase. Real cash income rose by 2.98% and the tax rate rose from 22.12% to 23.58%. As a result, after tax income rose by only 1.05%.

Real net income takes out various tax credit and capital gains adjustments to get back to the real cash income rather than the taxable income.

Of course, not included here are all her superannuation (retirement) contributions, which add in another $22k pre tax. If we add that back in, income is above $96k and the tax rate is around 21.5%.

Moom's Taxes 2010-2011

I can't submit my tax return yet as I don't have details of the tax treatment of a couple of distributions I received. But I did all the other calculations now to get this out of the way. In the following table I make some assumptions about the distributions:



Click here for the 2009-10 data. For those of you outside Australia, the Australian tax year runs from 1 July to 30 June. There are no state income taxes and no joint taxation of married couples. All numbers are in Australian Dollars (1 AUD = 1.10 USD).

I was only employed in Australia for 6 months of the year, hence the relatively low salary, which is after 10% voluntary super (retirement) contributions. Gross interest and Australian dividends are pretty self explanatory. Dividends are just direct payments from companies. Dividends and other Australian income not including capital gains paid out by a managed (mutual) fund is include in the Income Distribution from Trusts. I had a net capital loss, but you can't deduct any of that against general income (unlike the US), so zero is entered here. Foreign source income is a lot bigger than last year because I worked in Sweden for a month. It's also the reason why I have such a large foreign tax credit as I was charged 25% flat tax on my earnings there. Total income comes in 28% higher than in the previous year.

The work related travel expense is due to not being fully refunded for flying to CCL. Australian dividend deductions are mostly margin interest. Taxable income was up 32%.

Gross tax is the tax due on taxable income if no credits were allowed. The low income tax offset is a credit available if your income is under $67,500 and is maximal at $1,500 if your income is below $30,000. Franking credits are credits on Australian dividends for corporation tax paid by the companies. This is Australia's way of reducing the double taxation of corporate profits. As noted above, I paid a lot of foreign tax, mostly to Sweden this year. As a result I should only owe $6,624 to the Australian government, which is an 11.82% tax rate. As $12,266 was withheld, I should get a $5,642 refund. Withholding was very high because it is based on me earning my salary for 12 months rather than just 6.

Snork Maiden's Taxes 2010-2011

Time for the annual report on Snork Maiden's taxes. For some reason, these are some of my most popular posts. For comparison here is last year's report. I can't actually submit her return until I do my taxes which won't be for a while (I need to gather a lot of tax statements from investments first). This is because they are now requiring full details of a spouse's income in order to avoid paying the Medicare surcharge. This is an extra 1% tax on total taxable income for household's earning more than $A146,000 a year who don't have private health insurance. Our income for the 2010-2011 tax year was about $A120,000 but we need to prove that.



Compared to last year salary (after superannuation (retirement) contributions rose by 3.3%. Distributions of Australian income from managed (mutual) funds almost doubled but foreign income fell a little. She had about double the amount of unrefunded work expenses. As a result, taxable income was up 3.0%.

The amount of tax due in last year's post is wrong. In fact, tax due rose by 2.7%. This year's tax refund should be $A633 compared to an actual refund of $A203 last year. The estimated tax rate is slightly down at 22.11% of taxable income. There are no state income taxes in Australia so this federal tax is the total income tax.

Moom's Taxes 2009-2010

I'm going to give up waiting for a tax statement from EAIT. It's not like I've received the distribution itself either and my guess is that it is largely a capital return. I'll attribute any taxable amount to my 2010-11 taxes. So here is my income, deductions, taxes etc. according to the Australian Tax Office rules:



Salary was for 8 months of work which ended in February (it was a one year contract that started in the previous tax year - our tax years run 1st July to 30th of June in Australia). Australian dividends is pretty self-explanatory - but it doesn't include dividends earned through mutual fund (managed fund/unit trust) structures. These are included in the next item "distributions from trusts". That figure doesn't include foreign income or capital gains distributed by the funds. My net capital gain was zero. I now have an $A80k capital loss carry forward. So I'm not expecting on paying any capital gains tax any time soon. Assessable foreign source income included foreign dividends etc. and also money I earned from overseas as a consultant.

On the deduction side the biggest items in Australian dividend deductions is margin interest. But I also included computing costs etc. here. Supplement deductions are mostly foreign margin interest.

We then compute the gross tax liable using the standard tax rates. My marginal rate is formally 31.5%. But then I should be eligible for a $819 low income tax offset! After that the tax payable is $6,390.

This is offset by almost $2,000 of tax credits. These are mostly "franking" or "imputation" credits that account for the corporation tax paid by Australian companies who paid dividends to me. Australia is one of the few countries that still has this system of "see through" taxation. As a result my net tax liability was $4,405 according to my calculations or 10.4% of my taxable income of $42k.

But $8,565 was withheld from my salary. So I should get around $4,160 as a refund.

There are no state income taxes in Australia so that is my total income tax bill/refund.

For last year's numbers follow this link.

Moom's Draft Australian Tax Return 2010

I've just completed drafting my tax return for this year. Our tax year ends on June 30. That's presumably because the agricultural year is out by 6 months in the Southern Hemisphere compared to the Northern Hemisphere.

I still don't have a tax statement from the EAIT fund of hedge funds. They claim they'll send one out this month. The deadline for the tax return is 31 October. If I don't get it soon, I'll just have to treat that as income for 2010-2001. But I'll wait a little longer before finalizing and sending in the return. Yes, I send in a paper return. I do all the calculations on a spreadsheet that I adapt each year to changes in the tax rules and my circumstances. Anyway, taxable income came in at roughly $A43k and I should owe about $A4,700 in taxes but $A8,565 was withheld. This is due to only being employed for 8 months of the year but having tax deducted as if I'd work for 12 months and about $A2,000 in franking credits and foreign tax paid. So I expect about a $A4,000 refund.

Last year, my taxable income was under $A10k due to lower income ($A25k vs. $A50k this year) and higher deductions ($A15k vs. $A7k). Mostly the increase in income was due to working 8 months vs. 4 months and the decrease in expenses to the derivative losses I suffered in the financial crisis.

I'll post the detailed spreadsheets when I finalize the return.

Snork Maiden's Taxes 2009-2010

It's tax time again down under. The tax year ends on 30th June here and the deadline for submission is 15th October. It will be a while before I can do my own taxes but I have got Snork Maiden's tax return out of the way. As it is pretty straightforward and I have a spreadsheet set up from last year as well as last year's return to refer to it took me less than an hour to do. See last year's figures for a comparison.



I estimate that she owes $13 in taxes which is much better than last year. Her salary actually increased a lot more than this over the past year (from $71,772 to $77,756) but this was our first full year of making salary sacrifice contributions of $A225 per fortnight into superannuation (i.e. pretax retirement contributions). This reduced her take home salary. Otherwise, there is not a lot of difference. Australian investment income was a little higher and foreign investment income a little lower.

Her average tax rate was 22.78%. Her marginal tax rate is 31.5%. This covers all taxes as there are no state income taxes in Australia.

Moom's Tax Assessment

I didn't get as much of a tax refund as I was expecting for two reasons:

1. You can only claim the low income tax offset to the extent that tax is payable on your income in the first place. The offset can be as much as $A1,200 but if tax payable is, say, $A573.75 as in my case then that is as much as you can claim.

2. Foreign tax credits can only be claimed if after the low income tax offset you have some tax liability. Mine was zero and so I couldn't claim $A251 in foreign tax paid.

But I could claim $A1,606.68 in franking credits on Australian dividends and I'd already paid $A3,706 in tax and so my refund was $A5,312.68.

More Details on Moom's Taxes

I now submitted my tax return and as promised here are all the details. You can compare these numbers to last year's too. The main differences are that I earned a salary for four months this tax year and no salary last tax year (in Australia our tax year ends on 30th June). But this year my net capital gain for tax purposes was zero versus almost $10k last year (1 AUD = 0.80 USD on 30th June). And dividend income declined due to selling stocks and companies cutting dividends. Deductions were a bit bigger. Supplement deductions are foreign margin interest and derivative losses by the way. Australian dividend deductions are Australian margin interest and depreciation costs on my computer etc. So I actually ended up earning less for tax purposes than last year.

Adjusting income to actual income rather than taxable - the main change is due to the fact that you can't deduct capital losses against other income - I really lost a pile of money. I end up getting a net 4.5% of my loss back from the ATO (Australian Tax Office). This is due to ending up with surplus franking credits - credits for corporation tax paid by Australian companies - which you can then claim back as cash. $3,700 was withheld from my wages. I get all of that back too. So we're expecting a $6,000 refund.

As I've got a salary for at least 8 months this year I may even end up paying some tax this year :)

Moom's Australian Taxes 2008-9

I just did my tax return. It only took 2 1/4 hours because I prepared a spreadsheet last year when I did our first tax returns after returning to Australia. The numbers aren't final because my employer never sent me my "PAYG Payment Summary" (equivalent to U.S. W2) and so I requested that today. Anyway, it looks like I should pay negative tax of about $A2,500 (due to the low income offset and surplus franking credits). About $A3,700 was withheld from my salary, so I should get a refund of about $A6,200. My taxable income was around $A10,000. Of course I really lost about $A50,000 but capital losses have to be carried forward to be set against capital gains in future years. I'll do a detailed analysis and comparison to last year when I have the final salary information.

What I'm confused about now is how the government will know I contributed $A1,000 to superannuation and so pay me a $A1,500 co-contribution? There wasn't anything on the tax return to mention that. Do they just get the info from my fund manager and then check that against my tax return? I guess so.

Snork Maiden's Taxes 2008-9

I just completed Snork Maiden's tax return. As it is pretty straightforward and I have a spreadsheet set up from last year as well as last year's return to refer to it only took me 3/4 hour to do. See last year's figures for a comparison.



Last year's salary was much lower due to us only moving to Australia after the tax year started. Snork Maiden's non-salary income increased as her savings built up. Unfortunately, for the first time ever she owes money on her tax return :( I don't understand how this can be. 2/3 of the way through the year we started making salary sacrifice contributions to superannuation which should have lowered our total tax bill for the year. That means that tax should have been withheld at too high a rate for the first eight months of the year. I expected that to roughly cancel out with the tax due on investment income. But apparently her employer withheld too little tax all year.

Her average tax rate was 23.56%. Her marginal tax rate is 31.5%. This covers all taxes as there are no state income taxes in Australia.

Moom's Taxable Income 2007-08

I've used the same format as I used for Snork Maiden's income statement. The main twist here is that I started off trying to treat my derivative trading (options, futures, and CFDs) as a business, which of course made a loss. But it turned out that I would have to defer the loss until my business made an income.

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Only if your business passes any of the following criteria, can you deduct a loss for the current year:

1. The business is a primary production or professional arts business and our assessable income for 2007-08 except any net capital gain from other sources us less than $40,000. So poor artists and farmers - go ahead and take a risk - at least your losses will be deductible.

2. There was at least $20,000 of assessable income from the business activity for this income year. I don't get this one. If you made $20k there isn't a loss to deduct?!

3. The business has produced a profit for tax purposes in three out of the past five years including this year.

4. The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000. Make sure you rent a big enough store or office!

5. The value of certain other assets (except various vehicles) used is at least $100,000. Don't worry about over-capitalizing your restaurant :)

6. The taxation commissioner gives you special permission in writing.

These rules are very unfriendly to small start-up businesses. Especially, home-based ones. If your business fails, you may never be able to deduct the losses from income. These rules are intended to stop people claiming tax losses for hobbies. But I feel they go too far in an anti-entrepreneurial direction. Please let me know if you understand how to interpret #2.

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So I, instead, attributed the costs I was going to attribute to business to "Australian Interest and Dividend Deductions", which also includes my Australian margin interest. I attributed my net derivative loss to "Other deductions" along with my foreign margin interest. The downside is that as an investor you can't deduct home office occupancy costs, which are deductible to a home-based "business". But I don't when, if ever, I'll make a relevant business profit and so I preferred to be able to deduct the other losses immediately.

As you can see, adding back in the CGT discount for long-term capital gains almost doubles my net income. After subtracting out franking credits which aren't actually received as cash income my income was $16,184 vs a taxable income of $10,662.

It looks like my income is too high for Snork Maiden to be able to claim much of a "Spouse Offset". In retrospect, I should have sold my Croesus Mining shares and claimed a massive capital gains loss that would have wiped out my income for the year.

BTW, I estimate Snork Maiden's tax at 20.6% of net income. She should get a $1,234 refund. Moom's tax rate is negative (-18.7% of the bottom line income number above due to franking credits). He should get a $3,520 refund. After tax cash income was for Moom $19,704 and Snork Maiden $38,658.

Snork Maiden's Taxable Income

I've computed Snork Maiden's 2007-8 income for her Australian tax return (the tax year runs from July 1st to June 30th). I can't complete the return or work out how big a refund she should receive until I've done my tax return, which is the next project. The first two sections of the table should be pretty self explanatory. Income distribution from trusts is Australian source income, not including capital gains from managed funds (mutual funds). For some reason this has its own special section in the tax return (well combined with partnership income) while capital gains and foreign income from managed funds is reported in other relevant sections of the return together with income in those categories from ordinary shares and other assets. Net income at $48,629 is firmly in the 30% marginal tax rate bracket (31.5% including the Medicare levy). Income is reduced this year by only being in the country for nine months of the tax year. Rather than applying a lower rate to long-term capital gains, Australia only requires taxpayers to report half the gain. I've added back the "concession" in the line "net income without CGT discount". On the other hand you have to report dividends in terms of the gross dividend before the company paid Australian corporation tax on it. You then get to claim the tax they paid back to avoid double taxation of dividends. These credits are called "franking credits". I've deducted this notional income in the final line of the table. Neither of these changes make much difference to Snork Maiden's return, but will make a big difference to mine. Snork Maiden had $11,272 in tax withheld (including franking credits). I estimate she should have paid from $7,962 (if my net income is zero) to $10,062 (if my net income is above the maximum threshold for a "spouse offset" to apply). Her refund should, therefore, be between $1,209 and $3,309. The effective tax rate is, therefore, between 16.3% and 20.6%. There are no state income taxes in Australia. Unlike the US, Australia does not require you to compute your tax yourself. All you need to do is report income, deductions, credits etc. They do show you how to compute the tax at the end of the "Taxpack". There is also a calculator on the ATO website.