Tax Brackets – Tax Calculator

What tax bracket are you? Australian individual income tax has a sliding scale of tax depending on your level of income ranging from 0% to 45%. The top tax bracket of 45% starts on earnings over $180,000, so it only applies to around 1% of the working population.

As accountants, the tax bracket is important as it represents the marginal rate of tax that applies if the individual earned an addition $1 in earnings. If a person is in the top tax bracket, then each additional $1 is taxed at 45%. We then look at what alternatives are available to them in terms of income splitting, through trusts, companies and their family members. Depending upon how their corporate structure is organised will affect what is available to them. We might try and divert income to companies (taxed at 30%) or superannuation funds (taxed at 15%) of their family members (taxed between 0% and 45%).

As tax rates change each year, a great tool is the Tax Calculator Addin for Excel, which enables you with a few simple excel formulas show the marginal rate of tax and the average rate of tax. For example:

  • = MarginalRate2012( taxable Income) shows the marginal rate of tax (or Tax Bracket) at that level of income. It could be shown as =MarginalRate2012(100000) or =marginalRate2012(B6) to reference another cell.
  • =AvgTaxRate2012(taxableIncome) shows the average rate of tax. For accountants, this is a very useful formula to help and explain to clients how how tax they are actually paying and how you have helped them lower their average rate of tax.
The Tax Calculator Addin for Excel is a very powerful tool for use in Microsoft Office 2007 and Office 2010 excel spreadsheets. You just save the file once and you will be able to use the tax calculator addin in any excel spreadsheet, saving you hours of time and frustration in calculating your tax bracket.