Division 4—How to work out the income tax payable on your taxable income
Part 1-3—Core provisions
Table of sections
4-1 Who must pay income tax
4-5 Meaning of you
4-10 How to work out how much income tax you must pay
4-15 How to work out your taxable income
4-1 Who must pay income tax
Income tax is payable by each individual and company, and by some other entities.
Note: The actual amount of income tax payable may be nil.
For a list of the entities that must pay income tax,
see Division 9, starting at section 9-1.
4-5 Meaning of you
If a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited.
Note: The expression you is not used in provisions that apply only to entities that are not individuals.
4-10 How to work out how much income tax you must pay
(1) You must pay income tax for each year ending on 30 June, called the financial year.
(2) Your income tax is worked out by reference to your taxable income for the income year. The income year is the same as the *financial year, except in these cases:
(a) for a company, the income year is the previous financial year;
(b) if you adopt an accounting period ending on a day other than 30 June, the income year is the accounting period adopted in place of the financial year or previous financial year, as appropriate.
Note: The Commissioner can allow you to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936.
(3) Work out your income tax for the *financial year as follows:
Method statement
Step 1. Work out your taxable income for the income year.
To do this, see section 4-15.
Step 2. Work out your basic income tax liability on your taxable income using:
(a) the income tax rate or rates that apply to you for the income year; and
(b) any special provisions that apply to working out that liability.
See the Income Tax Rates Act 1986.
Step 3. Work out your tax offsets for the income year. A tax offset reduces the amount of income tax you have to pay.
For the list of tax offsets, see section 13-1.
Step 4. Subtract your *tax offsets from your basic income tax liability. The result is how much income tax you owe for the *financial year. (If your total tax offsets exceed your basic income tax liability, you are not entitled to a refund, or to offset the excess against any other liability.)
Note: Some tax offsets can be carried forward to a later year. See, for example, section 160AFE of the Income Tax Assessment Act 1936, which deals with the carry forward of excess foreign tax credits.
(4) For some entities, some or all of their income tax for the *financial year is worked out by reference to something other than taxable income for the income year.
See section 9-5.
4-15 How to work out your taxable income
(1) Work out your taxable income for the income year like this:
Method statement
Step 1. Add up all your assessable income for the income year.
To find out about your assessable income, see Division 6.
Step 2. Add up your deductions for the income year.
To find out what you can deduct, see Division 8.
Step 3. Subtract your deductions from your assessable income (unless they exceed it). The result is your taxable income. (If the deductions equal or exceed the assessable income, you don’t have a taxable income.)
Note: If the deductions exceed the assessable income, you may have a tax loss which you may be able to deduct in a later income year: see Division 36.
(2) There are cases where taxable income is worked out in a special way:
|
Item |
For this case ... |
See: |
|
1. |
A company does not maintain continuity of ownership and control during the income year and does not continue to carry on the same business |
Subdivision 165-B |
|
2. |
A company becomes a PDF (pooled development fund) during the income year, and the PDF component for the income year is a nil amount |
section 124ZTA of the Income Tax Assessment Act 1936 |
|
3. |
A shipowner or charterer:
· has its principal place of business outside Australia; and
· carries passengers, freight or mail shipped in Australia
|
section 129 of the Income Tax Assessment Act 1936 |
|
4. |
An insurer who is not an Australian resident enters into insurance contracts connected with Australia |
sections 142 and 143 of the Income Tax Assessment Act 1936 |
|
5. |
The Commissioner makes a default or special assessment of taxable income |
sections 167 and 168 of the Income Tax Assessment Act 1936 |
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