If you have ever applied – or will ever – for certain tax offsets, concessions or government benefits, you may very well be asked to provide your “adjusted taxable income” (ATI).
ATI impacts on:
- eligibility for certain tax offsets;
- Centrelink and the Child Support Agency assessments;
- entitlement to Family Tax Benefit (both A and B) and the Child Care Benefit;
- Parental Leave pay, and Dad and Partner pay thresholds;
- the Low Income Supplement and Low Income Family Supplement;
- eligibility for the Commonwealth Seniors Health Card (although deemed income from account-based income streams are now included);
- the government’s private health insurance rebate; and
- the Medicare Levy Surcharge.
So how is your adjusted taxable income worked out, and how can you continue eligibility for certain offsets and concessions by managing your ATI?
The ATI recipe
Simply put, and as the name suggests, ATI starts with ordinary taxable income (the amount you earn above the taxing threshold of $18,200, minus deductions) to which various elements of adjustment are applied.
These adjustments may include any of the following to calculate your ATI (links take you to tax return instructions to explain further):
- reportable employer superannuation contributions
- deductible personal superannuation contributions
- adjusted fringe benefits*
- certain tax-free government pensions or benefits
- target foreign income
- net financial investment loss
- net rental property loss
- child support payments made to another person.
While most of the above are added to taxable income, for purposes of some government payments or services any child support you pay will be deducted from the final ATI.
The Tax Office has provided several income test calculators to make the job easier.
Important considerations such as the levels of private health insurance rebate are affected by ATI. Also, important for many taxpayers, is retaining eligibility for certain offsets and concessions.
As ATI can be affected by the many adjustments above, there are particular strategies that can be employed to ensure continuing eligibility through managing levels of ATI.
For example, there is a tax offset available for a spouse who is an invalid or who cares for an invalid, but the offset cannot be claimed if your ATI (for 2015-16) is above $100,000, or if your spouse’s ATI is more than $10,634. You may have some scope to reduce your or your spouse’s ATI through salary sacrificing to superannuation, as reportable employer super contributions are included. FBT-free benefits, including work-related items such as tools of trade, mobile phone, laptop computer and more, could do the job as well.
Depending on the entitlement or offset, calculating of the ATI can be tricky and time consuming – speak to us for assistance.
*The adjusted fringe benefit amount is the total reportable fringe benefits amounts multiplied by (one minus the FBT rate) — that is, reportable fringe benefit x (1 – 0.49 = 0.51). This reflects the non-grossed-up value of the benefit. As income tax is not paid on fringe benefits, the grossed-up taxable value of a benefit includes the amount of income tax an employee would have paid if cash salary had been received instead.