Do you know how your tax works?
I often ask my clients if they know how the tax system works and at first they usually say yes. I’ll ask a few more questions like: ‘what’s your top tax bracket?’ after which we generally encounter confusion! They then admit they have never really understood how they are being taxed.
It’s nothing to be embarrassed about because very few people actually do know how the tax brackets work. Just like property investment, we aren’t taught these things at school. That’s why we are here, to help you learn these things.
Understanding your tax
If you want to know how to get your tax back, you need to know how the Tax Office took it off you in the first place.
In Australia we have a ‘marginal tax system’. This basically means that the more you earn, the more tax you pay. At the time of writing, the ATO website stated that those brackets for Australian residents in 2022/2023 were as follows:
We are always amused by the people who say they ‘don’t want a pay rise because it will put them into the next tax bracket’. The good news is that it doesn’t work like that! If you get a pay rise from $120,000 to $125,000, while you do move up a tax bracket, you’re not going to pay 37% tax on the whole lot. You’ll only pay 37% on the portion over $120,000.
Want to learn more about how tax works with your investment property? Register for our next live webinar or get in touch for a free chat with our team.
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