I operate an Australian company and am not too sure about how to calculate income tax. Is income tax on total income and income tax on Australian income calculated separately?
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Answer by Anton Joseph, Strathfield South 2136 NSW
- Calculating income tax can be complicated and you should always seek expert tax advice to ensure that it is done properly.
- I will provide a case scenario to explain how income tax on total income and income tax on Australian income only is calculated.
- An Australian company has the following assessable incomes:
- foreign portfolio dividend of $500,000 (foreign tax paid $45,000);
- foreign interest of $200,000 (foreign tax paid $35,000); and
- Australian sourced income $750,000.
- To calculate Australian income tax on total income you must do the following:
- total income = $500,000 + $200,000 + $750,000 = $1,450,000; and
- tax on income = 30% of $1,450,000 = $435,000.
- To calculate Australian income tax on Australian income only you must do the following:
- Australian income tax on Australian income = 30% of $750,000 = $225,000;
- making the offset limit = (Australian income tax on total income) $435,000 – (Australian income tax on Australian income) $ 225,000 = $ 210,000;
- total foreign tax paid = $ 45,000 + $ 35,000 = $80,000; and
- so the foreign income tax offset (FITO) lost = $210,000 - $ 80,000 = $ 130,000.