She's On The Money - How Tax Works

Episode Date: March 28, 2023

Strap yourself in, because on today's episode we talk all about tax! Why do we pay tax? What are the tax brackets and how do they work? What kind of income is taxable and so much more. Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money.

She's on the money. Hello and welcome to She's On The Money, the podcast for millennials who want financial freedom. You sound so chipper this morning. I'm in such a good mood. Why are you in such a good mood? I've never gotten up this early ever in my lifetime. No, you absolutely have.

What time is it? It's 9.12. That is so... 9.12am and Bec has never been up this early. I've never seen the morning sun. It is so gorgeous. Where I'm living at the moment is a fair bit out of the CBD and obviously I'm a little bit used to having only like a 15 minute commute this morning, Bec, one hour and 52 minutes to get

to work. What the hell? Yeah, I had to get up before 6am and you're talking about 9, 12am being ridiculous. Oh my God. Why did it take so long? Traffic. Traffic. Very sexy traffic. But do you know what else is sexy, Bec? What? Get this. Tax. Oh my God. That is kind of sexy. And you know why sexy? Because I have no idea how it works. It's a mystery. Yeah, it's not. It's not actually a mystery. But I feel like so many of us are just living under a rock when it comes to taxes. And if you've heard any of my content historically, I genuinely believe it is a privilege to pay tax. And we'll go on and on about that a little bit later because I can't stop myself. But I just think we are so lucky to live in a world where everything is looked after. Like, you know,

if someone gets sick, we have a healthcare system that can prop us up. We have, you know, roads that are drivable. We have infrastructure that is keeping us safe and has been built safely. There are just so many things in Australia that we should be grateful for. And the amount of times I hear people saying, oh my gosh, I have to pay so much tax. The amount of times I snap back and I'm like, okay, cool. So you also make a lot of money. That might be nice. That might be nice for you, but I'm sick of people talking about how much of a drag it is. And while we'll get into it, and I know nobody loves paying taxes, we'll talk about how they work. But have you ever heard the saying, Bec, that there are only two certain things in life? Yes. Live, love, and laugh.

No, those are three. Those are three. We're talking about the phrase where it references two, and those two are death and taxes. Ah, yep. That'll test that. Yeah, really sexy. And obviously, this show is all about money. So we're going to be talking about the latter on today's show, don't worry. But often when something is so universal, we don't actually stop to ask really basic questions about it, right? It often becomes a given. And I think that's why our education system has genuinely skipped over financial literacy for so long, because we should just get it, right? Right. And that's not the case at all. But taxes, Bec, are just an inevitable thing that we actually have to organize each and every single year. But don't worry, if you've maybe let

it slip. It is not the end of the world. We can get you back on track. But very few questions are ever asked. So I thought, why not do an entire episode on this sexy, sexy topic of paying taxes? Let's jump straight in. Oh, you look so psyched. You came in here absolutely chipper. And then I was like, we're going to talk about tax. And you're like, why did I get up this early? All I know about tax so far is that I don't understand how people let it slip. How do they do it late? Because I get so excited July 1st. You get excited for tax? Yeah, because I don't know how it works. Oh, no wonder I let you on this team.

I just think that, okay, cool, I'm going to get some money and I'm going to do it as soon as it hits July 1, 12am. I am so excited. I don't know why. I don't know where it's coming from, but I'm going to get some money. 10 out of 10. That sounds like an experience I would like to sign up for. That is your experience and I don't want to stereotype here.

That's your experience because you are a PAYG employee and often over the year, you would have accrued a few things that you could have claimed on tax and you would have submitted in your tax return to say, oh, I can claim A, B, C, and D. But in your PAYG job, you were taxed at the full rate of your marginal tax rate, not including any of the things you could claim back. So then tax time, when it came to submitting your tax, you're going to get a little bit back, which is really sexy and why so many people love doing their taxes just like you, but also why somebody like me, who's a business owner, doesn't love doing it because I have the opposite problem. The second I submit my tax, often I end up with a little bit more to pay than I had actually

anticipated because business financials are not as clean cut as a PAYG employee. So your side of the table, excited about tax. My side of the table, not that excited, but also still thinks it's a privilege. Okay. Well, on that, I guess we'll start at base level. What is income tax? Sexy question. I like it.

So income tax is the amount of tax that is applied to your quote taxable income every year and is paid on every single form of income that you derive as an individual. The amount that you pay is going to really depend on how much that you earn and any deductions that you can claim or offset that you are entitled to. So if you're an employer, your employer is going to deduct the tax from each pay so you don't need to stress about it. They're going to do it for you and they're going to send that tax from your pay straight to the ATO or the Australian Taxation Office on your behalf. And that's the pot of money that goes to the taxation office that you're claiming on to say, actually, hi, I had some deductions. Can you give me some of that money

back at tax time? And that's why you think it's so sexy. If you're someone who is self-employed or you freelance or you have your own business, this is going to be your responsibility. So you're going to need to set aside money each and every single pay or each and every single time you derive an income to pay that tax. And if you want some more information, and I'm just going to do a not so subtle plug to the business Bible, our business podcast, if you haven't listened to that on that podcast, I actually break down exactly how I run my business bank accounts. And I think that as a small business owner, that's really important to go have a look at because there is so much confusion over what is right and what is wrong. And I'm not saying I am absolutely right, but it

works for me and tax is not stressful. So at the end of every single financial year, most people need to lodge a tax return with the ATO and you're actually able to do that yourself or you're able to enlist the help of an accountant or a tax agent. And I think that that's an important question to cover as well because so many people ask, do I actually need an accountant to do this? And I guess the summary of that is the tax system from my perspective is actually quite elite and they actually want you to file your tax return, right? They want you to do that as soon as possible and their online claiming system is actually super easy. So unless you have a more complicated tax return, if you're just a salaried PAYG employee who has a very clean cut salary, I don't see why

doing it yourself would be too much of an issue. Right, right. Okay. Yeah, I do mine myself and I feel like it's not too complicated. It can't be. If you're like me, I don't understand tax, but I do my own returns. I'm like, okay, well, the system must not be that flawed. Yeah, exactly. It's very, very easy to follow the prompts and kind of like add maybe deductions that you really didn't. All right, all right, all right. Backtrack. We would absolutely not do that. We would not do that. But if you're doing that and you're going to out yourself on Australia's biggest finance podcast,

they might listen. Okay, I'd just do everything very legally by the book. Wow. Wow, fancy. V, when you mentioned before that all the income you earn is taxable, What exactly does that mean? What income is taxable? Yeah. Okay. So you actually have to pay tax on any money earned from a lot of different things. So from your job, so from any type of employment, if you have a pension or an annuity, which is something that a lot of people listening to Cheers on the Money probably have no experience in,

but I'll teach you about that later, don't worry. Most government payments from any type of investment you have, from any type of capital gains you have. So if you bought and then sold a property and you made capital gain on that property, which means that property increased in value over time, you're going to pay tax on that. You're going to pay tax on some grants and payments that you might receive. You would pay tax on any income that you get from trusts or partnerships or businesses, and you'd also pay tax on foreign income. And I think that that is one of those ones which is a little bit misconstrued because people go, but if I made money in the UK. I shouldn't have to pay tax here because I paid it in the UK. And we actually have

to declare it. And some of that income could be taxable. Okay. And what income isn't taxable? Okay. So get this. The worst of all is lottery winnings, Bec. So if you win the lotto or other prizes, you don't have to pay tax on it. But hypothetically, if you were really smart, what you would do with your lottery winnings is invest it. If that investment starts making money, you have to start paying tax on that money that that money has made does that make sense that makes sense yeah so the lump sum absolutely tax-free but anything above and beyond that that that money makes for you is going to be taxable because that's just become an income okay so may as well splurge just just go ahead buy a new car get a boat do you want a jet ski let's get three why

not so you don't have to pay any tax on lottery winnings or other prizes how good on things like small gifts and birthday presents. You don't have to pay tax on the 50 bucks that your grandma gave you for Christmas. Imagine if you did. Oh my gosh, it would literally be the worst. You don't have to pay tax on some specific government grants and payments. You don't have to pay tax, thankfully, on child support. Good. You don't have to pay tax on the tax-free portion of a redundancy payout. So if you haven't gone through the redundancy process before, it actually could be quite confusing. And it's something that I do think we all should understand because it could happen but essentially if you get made redundant in your role you will accrue

a lump sum payment to be paid out of and it will depend on how long you've worked for that business so if you've worked there for 12 months it won't be that chic but if you've worked there for like 10 plus years it could look really sexy and then the government looks at that lump sum payment and says okay we're only going to tax a certain portion of that and the rest of that is tax-free which is just good to know. It's not essential information for absolutely everybody, but I think that if you're going through that process, just a little FYI to keep it in check. And if you are going through that process and it is a nice amount of money, please have a chat with your accountant to make sure that you're in the best possible position because I don't mean to be rude,

but not every single employer is going to get the calculations correct because it's not all that often that people, you know, do redundancy payouts for employees, right? And then you don't need to pay tax on government super co-contributions, which is very, very nice. Super co-contributions. That's when like you pay a certain amount, like a small amount in the government. Matches it. Matches that. Yeah, matches it or add something else for you. If you are on a low income or for anyone? For anyone. It's a co-contribution. And so essentially, if you're getting a co-contribution, you probably meet the criteria of being able to get that co-contribution. If you're making millions, you're probably not going to get the co-contribution.

I see. I see. So my next question is why do taxes even exist and where are our taxes going? All right. So let's just do a little preparation for our next trivia night, Bec. I'm pretty sure we're on the same page. We've never done this before, but like, I reckon you and I would be a really good trivia team. Do you think so? Yeah, I reckon. I reckon because we have such an eclectic knowledge between us. Like, there's no way I know everything that you know. And like, I'm just technically intelligent. Like, I'm just not street smart, you know? Oh my God. You're like the street smart one in our

relationship and I'm like the book smart one. And so like together we could take over the trivia world. I got to tell you though, there is no question in the history of trivia that asks about street smarts and I am usually quite terrible. Yeah, well, when it comes to book smarts, here's some hot tips for you. Let's go. So the federal income tax was first introduced in 1915 in order to help fund Australia's war effort in the First World War. So it hasn't been around forever and ever and ever. But essentially the ATO or the Australian government collects taxes and they actually fund community services. I feel like taxes get a really bad rap sometimes because people are like, ah, we're just funding dull bludgers. Yep. Cool. Really glad that we

can support people in our community that need it. There is always, always, always going to be a very small group of people who brought a system. There is always going to be a very small group of people who take advantage of any system that exists and for you to crucify absolutely everybody else who is making use of a system that is from my perspective absolutely essential that is wildly unfair absolutely we believe it at that but as you know like it doesn't matter what it is like people brought in the system at Coles when they do their self-checkout like absolutely every system has people who are like nah I'm gonna do it differently and I'm gonna take advantage but just because people do that does not mean we should throw the entire system out, right?

Yeah. But essentially, the ATO collects taxes to pay for things like our healthcare, our education system, our emergency services, roads and then train lines and tram tracks and stuff like that. It pays for the Australian Defence Force. It also pays for welfare and disaster relief. So there are so many things that our taxes pay for, which ultimately put us in a very privileged and better off position. I'm very, very grateful for that. So am I. I just, I hate this concept that people are like, oh, I'm paying tax for what? For them to live their best life. It's like, do you know what? If you genuinely believe that someone is living their best life on less than minimum wage, you've got something else coming. You have rocks

in your head because that is not easy or, from my perspective, a best life. Like, that income is about $250 a week and most people who are utilising that system are definitely needing more than $250 a week to live. They might have kids, they might have other commitments. It doesn't leave anything for saving or investing or creating a dream life. Like, it blows my mind that people would go, oh, I hate paying taxes because such a small percentage of it goes towards welfare. like no i love that system and i want to support it to the nth degree i love it as well and if they maybe touchwood ever had to be in a situation where they needed that assistance then i'm sure they'd be very very grateful that they had paid tax i couldn't agree more and then also to further

that it's funny because sony and i could go on and on about this but we're going to do an entire episode on the cost of care soon about how much it costs to live with disability and the insurances you need to cover that. But I also think it's kind of hypocritical because here in Australia, we are the most underinsured country in the entire world. And the main argument people have when they're like, oh, I don't need insurance back. It doesn't matter. Like I don't need to waste my money on income protection. It's what the government's there for. That's what I pay taxes for. But then on the flip side, they're crucifying people who are actually making use of those systems. And it just is this crazy juxtaposition where they're like, I don't want

to pay taxes because people are abusing the system and I'm working so that they can live their free life. And then on the flip side, they're like, by the way, I also don't want to get insurances because if anything would happen to me, I could just go on the dole. Yeah, exactly. You little hypocrites, you. Pick a lane, baby. Exactly. On the topic of picking a lane. Yeah. What lane do we fit in? What is a tax bracket? What are the rates? Yeah. All right. So a tax bracket is basically the range of income that you fall into, which then determines how much tax you're going to have to pay. It's kind of like buckets. And from my perspective, Australia has a very progressive tax system, which actually means the higher your income, the more tax you

are going to pay. So, Bec, you can earn up to $18,200 in a financial year and not pay one cent of tax. Very sexy. That is very sexy. Very sexy. This is known as the tax-free threshold, and after which the tax rate then kicks in. So you would have come up against a conversation or even just a one-sided conversation with you and some tax papers when you join a new job about whether you want to claim the tax-free threshold or not. And a lot of people are like, I want a tax-free threshold. Of course I do. So you might be really tempted if you get a second job in the same financial year to go and tick that again and be like, yeah, I'll claim it again. And basically when you're ticking the box that says claim the tax-free threshold, you're notifying your employer

that you have not made $18,200 this year, and they're then going to pay you $18,200 in full before starting to apply your tax rate. Because you know how before I said your boss goes and takes your income, sends a portion of the income off to the taxman, and then gives you the money that you can spend, the responsibility is on them. That's telling them that the responsibility on them is to make sure that you get your $18,200 tax-free, no worries, and carry on. But if you've already claimed that before at a previous job and then you're claiming it at your second job, your second job has no idea what your previous job paid you. It's all about disclosure. So what's going to happen is they're going to pay you and you're going to get your tax-free

threshold twice. And then come tax time, you're going to have to pay it back. And you're going to get bit in the bottom when it comes to paying tax and you're not going to understand why because you'll be like, well, I didn't understand what tax-free threshold meant in the first place. I thought it would have all been automatically calculated. And that's not actually the case because your employer has no idea what other tax you've paid because you haven't submitted a tax return yet. Hasn't all been added up. No one's calculated it for you. They'll let you make use of that system twice because they don't know any different. So what we actually need to understand is one, what the tax-free threshold is. And two, if you've already earned

more than $18,200, don't tick that box because you're going to end up having to pay that tax back when tax time comes. And that can be quite painful. So one out of ten. A little side note. So just hypothetically, I make $20,000 a year and I tick the tax-free threshold box. I only pay tax on $1,800. You do. Yeah. So what would happen is up until $18,200, you'd pay absolutely no tax, not one cent. And then for every dollar you earn over $18,000, you would pay 19% tax. Okay. Because you've only earned $20,000. So that takes you into the first, I guess, bucket of tax. And so that's a good segue, I suppose. Let's go through what those marginal tax rates look like. I feel like the word marginal is just so unnecessary, but that's okay. So

essentially the tax rates for the 2021 and 2022 year, which you would have just submitted last year, and the 2022 slash 2023 financial year are actually the same. That is important because sometimes the tax rates change. So that is what we're talking about today. So as we said before, no tax if you're earning $18,200 or under. But the second you get to $18,201 all the way up to $45,000, you're going to pay 19% of any dollar over that $18,200. That's the second bucket. So third bucket is $45,001 all the way up to $120,000. Now this is a relatively new tax bracket. It used to be smaller. So the $45,000 bracket went up to about $80,000 and I'm really glad that this has expanded a little bit. So you're now on a lower tax bracket if you earn up to $120,000,

which I think is really sexy. But essentially what happens when you earn over $45,000 is you now have a two component tax rate. You pay what's called a base amount and then you pay a percentage each amount. And it's not confusing, I promise. It's just a set amount. If you earn more than $45,000, you'll pay $5,092 in tax. And on top of that, you will then pay 32.5% of the excess over $45,000. Does that make sense? So you've kind of got a base amount that you owe the government as a, you know, it doesn't matter what it is, you might earn $46,000. But you will always owe that $5,092 to begin with, and then you pay a percentage of every dollar over that. Okay. So if I'm making $110,000, I'll still pay the base $5,092.

Yeah. It doesn't change whether you're earning that $110,000 or you're earning $50,000. It's exactly the same tax rate, which is why it kind of, I want to say sucks in a way, but it's actually a very fair and equitable tax system from my perspective, comparing it to every other tax system around the world. The next bracket will be nice to be in this tax bracket is the fourth bucket. And this fourth bucket is from $120,001 up to $180,000, in which case your base amount of tax payable, that jumps significantly. So the base amount of tax payable is $29,467. Oh my gosh. Plus 37% of excess over $120,000. And then the fifth bucket, which is the highest marginal tax

rate here in Australia, is anyone who earns more than $180,000 pays a minimum amount of $51,667 in tax, plus 45% of excess over $180,000. Oh, that's a lot of money. It is a lot of money. And I guess contextualizing this a little bit, none of us were born before 1915. Like it's just, it's not possible, right? So Beck, when you were born, this tax system existed. In fact, this tax system was not as sexy as it is now. It's a better, more equitable tax system today than it was when you were born, right? And you grew up and you were told you're going to get a job and you're going to grow and learn and develop. And once you get your full-time job you're going to pay tax. Like it has always been a given. This is not something that has been

put on you as a surprise. Like you didn't get your first job and someone went, oh, by the way, have you heard of tax? And you're like, no, what? Like this is something that has existed the entire time. And I think it's really important to remember when we're looking at salary packages or what we're going to have in take-home salary is that we always talk if we are an employee about post-tax earnings. Because at the end of the day, you have always been in a position where if you wanted to work in Australia, you would pay tax. Full stop, end of story. You have always known that. It doesn't matter if you didn't understand the tax system or how it works. Nobody is expecting that of you if you were in prep. It is not going to count. But we've always

known that. So why are we now acting like tax is such a big burden and you didn't see it coming and you hadn't taken it into consideration when it's been there all along. Like to me, it's about only considering your post-tax take-home salary and making sure that that puts you in a good financial position because tax is just a given. It literally gets taken out of your salary before you even see it. Like you can't take it home and then, you know, have to pay the taxman later. It doesn't come into your account and you create some kind of emotional relationship with it and, and I go, oh my gosh, but you know that $29,467 that I have to pay in tax, I was actually going to buy a new car with or that was going to be my home deposit. It never was going to be that for

you. So I think that we really need to reframe how we view tax as it's the amount of money that you earn to put you in the best possible position and that is being in the privileged position of working and living in Australia, right? Like I just think from my perspective, I get so confused when people are like, oh my God, I just, I didn't know this. Like if you didn't understand the process, I get it. But to act like tax is such a burden on you and stops you from living your best life, that's not the case at all. In fact, it helps you live your best life and is usually the reason why you're actually able to derive an income because most of us relied on the public education system or the healthcare system at some point, whether it was you or family members that

have relied on that to put you in the best possible position. Anyway, I could rant about this all the time. That makes so much sense. It's really hard to look at the money that is being taken out. But when you explain it like that, it makes sense. And I guess I'm happy about it. Yeah. Like, let's just look at your take home salary and what we can do with that and start going, oh my God, but pre-tax it would have been. No, like pre-tax was always pre-tax. Like tax always existed. Yeah. I'll stop ranting about that because I could go on and on about it for today. but summarising all of that part of our conversation, the lowest tax rate in Australia is 19%, the highest is 45%, which is only charged on income over $180,000 in lovely nice. So I'm

going to let those people who earn more than $180,000 pay that tax rate. I'll never have to worry about that. Exactly. And most people actually sit in that middle bracket of earning between $45,000 and $120,000. You are also taxed. I feel like this is just a, and you're taxed on this, and you're taxed on this. Like I could be the Oprah of tax. Like and you get a tax and you get a tax. Like it just goes on and on. But you're also taxed on superannuation contributions and earnings. And there are obviously lots of tax benefits for paying money into your super fund. In fact, I've said it before on the podcast, I think super tax rate, really sexy. It is 15%

up until $27,500 each financial year, which is arguably the closest thing we're going to get to a tax haven here in Australia. Like if you earn enough money to be taxed, it's still lower than that. But that's pretty good. So literally anybody who is earning an income, putting more money towards their superannuation is making a return or making a benefit is actually getting taxed back by putting money into their super. I'm not saying that that strategy is going to be right for you, because I think I've said it before on the podcast. I, from my perspective, I'm 31. I still think I'm relatively young. I mean, my younger sister would beg to differ. She thinks I'm really old, but I don't contribute extra amounts of money to my superannuation. And I get asked that all the

time. And the reason I don't is because I have an investment portfolio outside of superannuation and every intention inside of me says that I would like to retire before the age of 65. and right now if I made heaps of additional contributions to super and had the sexiest super ever I would still have to work till 65 to be able to access that properly right right but if I build up my investment portfolio outside of superannuation I can lean on that until I retire so yes super is absolutely a priority I pay it for myself but I'm not going above and beyond because I kind of want to have access to it before then privileged yeah okay we need to talk about why I do that because if I just said to you, no, Bec, I don't pay additional super, you might deduct from that

conversation that to me, it's not important. It's really important to me. Exactly. But it's really important to me. But what's more important to me is my financial freedom at this point in my life. And at some point, hopefully in the future, I'm going to have the cash flow to be able to bump it up and make both look really sexy. But at the moment, the entire plan is to not have my entire net wealth sitting in superannuation. It's kind of split between my investment portfolio and my super. And when I retire, I'm going to rely on both of those, not just one or the other. Does that make sense? Very clever. You should be like a financial advisor. Oh my God, I was one time. Yeah. It was really fun. And then I decided to just do this. Yeah. Yeah. Yeah. But following

on from that, the other important point that I have written down here that I think is really important to talk about is that tax rates for foreign residents are substantially higher. But to keep this episode really tight and light and fun, tight and light and fun on a tax episode, good from me. We won't actually go into the situation for non-residents because there just isn't enough time today. Okay. Hopefully we do talk about that eventually. We absolutely will, but I think it'll be an entire podcast on if you are a non-resident, here are all the things that you can do to put yourself ahead because it's not just about talking about the tax rates. On that, let's have a little cheeky break. Go grab a tea. I need a cup of coffee. I need a

cup of coffee. Let's go. Let's go. Let's go get coffee. Okay, we are back, Fi. I just want to really quickly address something. What is it? And it's not part of the podcast. It's not part of the podcast. And we can cut this out if we need to. Is it that you brought two water bottles to this recording?

I usually bring four. You actually don't. I'm so confused. They're matte anyway. Carry on. Well, I just wanted to say that for anyone listening that's outside of Victoria, prep, something that you said before, prep means kindy. What?

What? Preschool comes before kindy and you're saying prep, which means kindy. That's all I wanted to say. What? Is kindy an American term? No way. Everybody in this room is shaking their head at me like I should know better. Do you know what?

I can't remember. I went to school for prep in Tasmania. So I don't know. I just thought it was called prep. Yeah. I think it's a Victorian Tasmanian thing. Have you heard it be called pre-K? Pre-K is preschool.

Oh. Yeah. Okay, cool. Well, tell me you don't have kids without telling me. I've just got no idea. Why would I know that? Yeah, that's fair. Flex, I only had to do prep once.

Oh, I think that is a flex. Yeah. I'm not too shocked. Now let's get back into it. So we're talking all about tax. Learn about this in prep. We did learn about this in prep. I definitely didn't learn about this in prep.

I was like colouring outside the lines and talking about blocks and like, you know, probably eating tan bark. Yeah. But if anyone was going to learn about tax in school, I feel like it would have been you. Yeah, my dad is and was an accountant. So maybe I did, but I didn't listen. Subconsciously. Oh, I see. I see.

I see. So recap. Yeah. When calculating your tax, is it as simple as say I earn 60K, I get taxed at 32.5% on that entire 60K? No, no, no. Okay. No, no. And I think that's where a lot of people get confused because you might go,

tax is really easy. I'm going to take 60 and then minus 32.5%. That makes sense, right? But that's actually not how it works. So what would happen is you would have to make a little chart. I'm really sorry here, but essentially what would happen is you would draw down your income and you go, okay, we're in 60 grand. But of that $60,000, my first $18,200, no tax. Nothing. Put that to the side. Cool. The next amount is going to be the second tax bracket we spoke about. So that's going to be where your tax rate is 19 cents in the dollar. So that would be $26,800 because you fall for that amount of money into the income bracket of between $18,200 and $45,000, which on that amount, you would pay $5,092 in tax. And then to top that up to get to the total

of $60,000, you've got another $15,000 to go. So for that amount of $15,000, you fall into the bracket of $45,120, which means that you're paying $0.32.5 in the dollar on that, which means you get taxed $4,875. So on a $60,000 income, you will pay a total tax amount of $9,967. Now to contextualize that, Bec, before, remember how I said when we're going through that tax table, which is obviously really hard to conceptualize on a podcast. So what I'll do is I'll post it on our Instagram and it will be up today so you can go and have a look at it. But remember how I was like, okay, well, if you earn between $45,000 and $120,000, you'll pay $5,092 plus. That's what that amount came to. So as it is being broken down, the $5,092, that actually comes from the previous

tax bracket because you will pay the total amount of tax on the amount of money between $18,200 and $45,000. So that total amount is $5,092, which is why we say, okay, you'll pay that $5,092, which is you paying 19 cents in the dollar. And then after that, you will pay 32 and a half cents on the rest of the money that you earn. Does that make sense? Oh, that makes so much sense. Which is why, from my perspective, we are a supreme tax system because you are not going to go, okay, well, far out. I fall into the bracket of earning between $45,000 and $120,000. Like, why do I have such a high tax bracket if I'm only on 50 grand? Like, that just doesn't seem fair. I want to be in the previous tax bracket. Well, for the first $45,000 you earn,

you are already there. You are already there. So you're only paying what, from my perspective, is really fair on tax, which is why it's kind of like a stepped tax system instead of a super strict, no, sorry, Beck, you earn over $45,000. Yes, you will be paying more tax. That is inevitable because the more money you earn, the more tax you pay. It is just how the world works. But you do get to make use of that first tax bracket of like the tax-free threshold. Then you get to max out the second tax bracket and you only have to pay 19 cents in the dollar for that amount. And then after that, you are subjected to all the other tax brackets. Does that make sense? Yeah, that really makes sense. So 90K or 120K or 200K sounds like a heap of money.

It's because it is. It actually is a lot of money. But let's look at what you can actually take home after tax. Yeah. Okay. Sexy, sexy. I like that you have said to me, all right, I'm going to have these questions which involve you having to do maths. And I'm like, come at me, bro. Me in grade 10 would have been like, are you the devil? Like, I don't want to come to play with you. But now I'm like, all right, sit down. Are you ready to hear about the tax rates? All right. So if you earn 40 grand, you'd pay $4,142 in tax, meaning that you get to take home $35,858 back. Very nice.

If you bump this up, I have chosen the number of 92,000 instead of your 90K, but $92,000 because this was actually the average annual salary from the Australian Bureau of Statistics in August 2022, you'll pay a total of $20,367 in tax, meaning you take home $71,633. It's very depressing that that's the average annual salary. Is it? I mean, it's not depressing for anyone but myself. Well, actually, I think that's an important conversation to have because when we say the average salary, that is the average. It is not the median or the mean. And when I say that, it's kind of like if I got you to imagine a bell curve, right? Right.

If you've got this big bell and in the middle, you've got what the normal people are earning. I promise you that is not $92,000. But if I took every single salary in Australia from people earning under $18,000 all the way up to top CEOs and the billionaires, and I took all their salaries and divided it by the amount of people we have, that's how we get $92,000. Oh, that makes sense. So, obviously, on the top end, there are so many really high income earners, but it's kind of like if I said to you, okay, Bec, take the numbers 3, 5, 10, and 12, and then

add another number of 150, and then we divide that. Obviously, the number's going to be higher because you've got that outlier of 150, right? That's not actually even close to what the 3, 5, and 10 are, right? Right. So that $150,000 is really pushing, quote, the average of the group up. Yep. It's not how the world actually works. So most people are not earning $92,000, Bec, because that's not what most people in Australia

are earning. That's not what average means. Even though you might assume that, what we actually want to go for is what's called a median salary. And a median is what most people in Australia are earning. So median means the most. okay so the most people in australia are actually earning sixty five thousand dollars which is a lot more reasonable right and it's a lot more i guess relatable so i would hate for you to listen to

that and be like v why did you pick ninety two thousand dollars like that's so unrelatable it's literally because it just works with the tax brackets that i'm trying to explain and i was just trying to be relatable and show you that i could read the abs website okay and i attacked you okay you attacked me but you got some information about it as well i'm happy about that so most people actually earn $65,000, but the average annual salary is $92,000, which means you're going to pay $20,367 and get to take home a sweet, sweet $71,633 each year. If you bump that up to a salary of $150,000, which is big dog energy, you are going to pay $40,567 in tax and take home a total of $109,433. You're taking home literally six figures of cash. That's wild. Cash, cash, cash

money. That's so much money. Yeah. And then if you earn $200,000, just because you mentioned it before, you'd pay $60,667 in tax and you would take home a total of $139,333. Wowie. Keep in mind that doesn't take into consideration like the Medicare levy or any deductions that you've got or anything like that that's just like base maths my favorite website if you're trying to work out you know oh I forgot this job increase what would my take-home salary be it's pay calculator.com.au and we'll put that in the show notes it's not a government-run website it's actually just a really fancy calculator where you can like tick different boxes and it will go do you want to include or exclude superannuation or do you have a HECS debt and it will actually tell

you how much take-home pay you'll actually get from a particular income, which I think is really sexy. Good website. Yes. 10 out of 10. I love that because you don't get shocked when the pay slip comes through. No, you don't. Absolutely not. A little bit of a different figure coming through. So, V, if I'm a low-income earner, not if. You are not anymore. No, I'm not anymore. That's very true. You are not allowed to identify as a low-income earner anymore. Oh, true. I feel like spiritually, I still am. But no, technically, I'm not. You are allowed to spiritually connect with that. Okay. But you're not. No, I'm not. I can't claim that anymore. If I'm a low income earner, is there any point taking a second job or will I just lose it all to tax? That is such

a stereotypical question. And I'm actually really glad you asked. So many people say, oh my God, it's not worth it. Teal dear, it's worth it. But people worry that tax is going to be so high on a second job because you don't get to claim that tax free threshold and it doesn't apply if you are paid. People get genuinely so worried. They're like, oh my gosh, the tax is going to be so high on a second job because the tax-free threshold isn't going to apply if you're getting paid in that job. And I guess that's true. You are just going to have to pay standard tax from the outset though with your second job. However, when you get your tax return completed, you'll actually pay the same amount of tax on your income, whether you have one or

multiple incomes. So if you, you know, let's say earned $40,000 and you went and got a side hustle and you're earning an extra $10,000, you're literally going to pay the same amount of tax as somebody who's on a $50,000 income. Like it's not going to change because it's the second job. The only, I guess, gotcha is that you can't claim the tax-free threshold twice, but no one can. And if you are claiming it twice, because I've heard people before, they're like, if you tick that box, you get paid twice. And it's like, yeah, it's going to come back in your tax return, my friend. It always does. Also, you're in love and war, but that is not fair and that is not how it works. So I think it's really important to remember that it doesn't

actually matter how many jobs you've got. You could have 50 jobs. And if you earn $100,000 from those 50 jobs, you're going to earn exactly the same amount of money as somebody who has $100,000 income. Does that make sense? So you're basically just getting like a pay rise. Literally, you're getting a pay rise. And I mean, you're trading your time and energy and effort for money and you are going to be treated fairly in our tax system. You're not going to be charged above and beyond because it's a second job. You're just not going to be able to claim that tax-free threshold. But nobody can anyway, even if they switch jobs halfway through the year, right? So if you're an Australian resident for tax purposes, as we've said before, the first $18,200

you earn is free, which is a money win. And you usually nominate one employer to be able to claim that tax-free threshold, which means they will not take any tax from your earnings before you reach that threshold, which we've talked about already on this episode. But I think it's really important to reiterate that first amount of $18,200 is tax-free regardless of who you are, whether you earn more than $200,000 or you earn less than $20,000, like you are going to be able to get that for free because that's how our tax system works. It is stepped. It is not just like, okay, cool. Well, you go in this bucket over here. Does that make sense? Yeah, that makes sense. That makes sense. I am hoping at some point, if you haven't done it already, we could do a whole

episode on deductibles and like claiming tax. Yeah, we did one ages ago, but I think it's time for an update because each and every single year, the tax system changes the rules, just like the superannuation system. Get this, complete sidetrack. But since super became a mandatory inclusion for all employees in 1992, Bec, there have been hundreds of changes to the superannuation system. How is that fair? Anyway, I know it's getting bigger and better and changing for the better, but like, oh my gosh, the tax system is very similar. Like there's just changing rules each year and each year the ATO kind of like says, hey guys, this year we're looking out for this because the world changes, right? Like 15 years ago, were the ATO looking out for influencers

claiming their holidays to Disneyland? No, they weren't because it wasn't a thing. But now they're looking out for it. So I think it's just interesting to cover. From my perspective, let's do an ep on that. Let's do it. Great. Thank you. All right. Let's go plan that. I think we're done here today. I feel like this has been short but sweet, but probably not that short because I can go on and on about tax. So I hope you guys have a good day. And if you've made it to the end, congratulations. Honestly, gold star for you. I love you. Have a really good rest of the week. Bye, guys. the advice shared on she's on the money is general in nature and does not consider your

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