Taxable income
Your total assessable income minus your allowable deductions — the figure your tax is actually calculated on.
Taxable income is not what you earn. It is what you earn from all sources, minus everything you are legally entitled to deduct. The brackets are then applied to this reduced figure.
Assessable income includes salary and wages, bank interest, dividends, rental income, capital gains, business profits, and most government payments. Deductions include work expenses, the cost of managing your tax affairs, donations to deductible gift recipients, and losses from investments.
Because tax is charged on this net figure rather than your gross pay, every legitimate dollar of deduction saves you tax at your marginal rate. That is why a $1,000 deduction is worth $370 to someone on 37% and only $160 to someone on 16%.
Gross pay is not taxable income
You earn $95,000 and claim $3,500 of work-related deductions. Your taxable income is $91,500, and every bracket calculation starts from that number rather than $95,000.
The bit people get wrong
Taxable income is not the same as the income figures used for HECS repayments, the Medicare Levy Surcharge, or family assistance. Those add back things like reportable super contributions and investment losses, so they can be considerably higher.
Common questions
Is superannuation part of my taxable income?
Compulsory employer super is not included in your taxable income — it is taxed inside the fund instead. Salary sacrificed amounts are also excluded, which is what makes sacrificing effective.
Does a tax refund count as income?
No. A refund is simply the return of tax you overpaid during the year, so it is not assessable income and does not need to be declared the following year.
What if my deductions exceed my income?
You may have a tax loss, which can generally be carried forward to offset income in future years. Rules differ for business and investment losses, so the treatment depends on where the loss came from.
Run your own numbers
Related terms
Source: Australian Taxation Office