Apples and Apples - An overview of tax returns

A friend of mine works as an employee, runs her own small business and has commenced renting out a room in her home. She asked me to explain how her tax is calculated using apples as she has never understood when it has been explained to her in other ways, so here we go..

Individual tax returns in Australia have different sections to report different types of income. In my friends example above she has 3 types of income:

Employment Income (less work related deductions): Blue Apples

Business Income (less business related expenses): Green Apples

Rental Income (less rental related expenses): Red Apples

Lets see the tax return as a basket.

Once you complete your tax return you will have a basket full of apples. The total amount of apples in the basket is what we call your Taxable Income.

Your tax payable is then calculated based on the number of apples in your basket (your taxable income).

Any prepaid tax is then subtracted from your tax payable. This will leave you in a tax payable or a tax refund due position once your tax return is lodged.

Prepaid tax includes:

• Pay As you Go Withholding (PAYGW) your employer is obligated to pay to the ATO from your wages, you can see these amounts on your payslip

• Pay As You Go Instalments (PAYGI) you may have been required to pay quarterly through out the year.