Training Session 13 04 02 2021 Payroll about taxation7

Summary

The script discusses the Australian progressive tax system, emphasizing its impact on employees' income tax. It explains the tax-free threshold, progressive tax brackets, and the highest tax rate for high-income earners. The importance of understanding this system is highlighted, especially when calculating bonuses to avoid over-taxation. The speaker advises on the correct approach to handling bonuses and the necessity of accurate tax calculations to prevent burdening employees with excessive tax deductions.

Takeaways

• 📊 Australia has a progressive tax system where individuals on lower incomes pay less tax compared to those on higher incomes.
• 💼 There's a tax-free threshold in Australia, meaning if your annual income is under AUD 18,200, you don't pay any tax, and the first AUD 18,200 of income is not taxed for everyone.
• 🔢 After the tax-free threshold, the tax system uses progressive brackets, with rates increasing as income rises, up to the highest threshold at AUD 180,000.
• 📈 The tax rates are calculated incrementally, for example, 19 cents for every dollar over AUD 18,200 up to AUD 45,000, and then 32.5 cents for every dollar over AUD 45,000.
• 💡 When calculating tax, the system considers the annual salary and automatically calculates the tax based on the progressive brackets.
• 🌐 The tax system in Australia assumes a consistent income throughout the year, which can lead to over-taxation if a large bonus is paid in a single month.
• 🧧 To avoid over-taxing bonuses, divide the bonus by twelve and add it to the monthly salary to calculate the correct tax, avoiding penalization from the progressive tax system.
• 📝 It's important to understand the progressive tax system to handle bonuses and other payouts correctly to prevent burdening employees with excessive tax deductions.
• 🤔 Awareness of the tax system's impact on bonuses is crucial, even if you're not the one doing the calculations, as it may require escalation to a technical query person for accurate tax calculation.
• 🛑 In high-risk situations like final payouts or large bonuses, it's better to have someone check the calculations to ensure accuracy and avoid over-taxation.
• 🔄 The formula for calculating the correct tax on bonuses will be provided in a template, but the key takeaway is understanding the need for this calculation due to the progressive tax system.

Q & A

What is the purpose of discussing the Australian income tax system in the script?

The purpose is to help the audience understand the progressive tax system in Australia, how it affects employees' income tax, and the importance of correctly calculating tax, especially when bonuses or other payouts are involved.

What is a progressive tax system?

A progressive tax system is one where the tax rate increases as the taxable income increases. People on lower income levels pay less tax compared to those on higher income levels, with the tax rate increasing up to the highest threshold.

What is the tax-free threshold in Australia according to the script?

The tax-free threshold in Australia is $18,200, meaning individuals earning under this amount do not have to pay any tax, and everyone else does not pay tax on the first $18,200 of their income.

How does the script describe the tax brackets in Australia?

The script explains that after the tax-free threshold, there are progressive tax brackets. For example, if someone earns between $18,201 and $45,000, they pay 19 cents for every dollar over $18,200, and this rate increases with higher income brackets, up to the highest rate for incomes over $180,000.

Why is it important to understand the progressive tax system when calculating an employee's tax?

Understanding the progressive tax system is crucial because it impacts how bonuses or other additional payouts are taxed. Without proper calculation, the system may over-tax these bonuses, assuming they are part of the regular income.

What should be done if an employee receives a bonus?

If an employee receives a bonus, the bonus amount should be divided by twelve and added to the regular salary to calculate the tax correctly. This prevents the progressive tax system from over-taxing the bonus as if it were part of the regular monthly income.

How does the script suggest handling bonuses in the payroll system?

The script suggests that when a bonus is paid, it should be treated as an escalation point. The payroll person should either calculate the correct tax or escalate the issue to a technical query person for assistance, ensuring the correct tax is applied.

What is the current superannuation rate mentioned in the script?

The current superannuation rate mentioned in the script is 9.5%.

Why is it recommended to have someone check the tax calculation for high-risk items like bonuses?

It is recommended to have someone check the tax calculation for high-risk items like bonuses to ensure accuracy and avoid over-taxing, which could burden the employee and lead to potential issues during their tax return.

What should a payroll person do if they are uncertain about the tax calculation for a bonus?

If a payroll person is uncertain about the tax calculation for a bonus, they should send an escalation email to a technical query person for assistance or to check the calculation they have done, ensuring it is correct.

How does the script illustrate the importance of awareness in tax calculations?

The script emphasizes the importance of awareness by explaining the potential pitfalls of the progressive tax system and the need to handle bonuses and other payouts correctly to avoid over-taxing employees.