When you first start working it can be a shock to see how much difference there is between your quoted salary and what actually goes into your bank account. Let’s look at the most common reasons for the difference.
Does your salary include the mandatory contribution that must be made to your retirement savings, better known as superannuation? In 2019 Employers need to contribute 9.5% of their employee’s gross salary into superannuation. As it is money that employees receive, albeit that it is locked away until retirement, some employers consider it a form of salary and present it in that way. For example a $100,000 wage could be called a $109,500 salary package ($100,000 wage + $9,500 superannuation). This is an important point to clarify to ensure you are comparing apples with apples.
In Australia we have a marginal income tax system. This means that as you earn more, a greater proportion of your income is taxed. The marginal tax rates change over time and can be found on the Australian Tax Office
Website, however in 2019 the tax rates are:
|Taxable Income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $90,000||$3,572 plus 32.5c for each $1 over $37,000|
|$90,001 – $180,000||$20,797 plus 37c for each $1 over $90,000|
|$180,001 and over||$54,097 plus 45c for each $1 over $180,000|
Employers are required to withhold income tax from your salary payments and remit this to the Australian Tax Office. The amount of tax that is withheld is generally calculated assuming you received the same payment for the
rest of the year. So if you were paid $3,000 in one month, the amount of tax withheld would be based on an annual salary of $36,000 (12x$3,000). This isn’t really an issue if you have a steady regular income, but is something
you will need to watch come tax time if you income varies over a year.
In addition to income tax, the government also collects the Medicare Levy to contribute towards public health services. In 2019 this levy is calculated as 2% of your taxable income.
In addition to the Medicare Levy this also a Medicare Levy Surcharge if you (or your family) earn over certain amounts and do not have private health insurance. The amount of the Medicare Levy Surcharge depends on your income as set out in the table below for 2019:
|Base tier||Tier 1||Tier 2||Tier 3|
|Single threshold||$90,000 or less||$90,001 – $105,000||$105,001 – $140,000||$140,001 or more|
|Family threshold||$180,000 or less||$180,001 – $210,000||$210,001 – $280,000||0 $280,001 or more|
|Medicare levy surcharge||0%||1%||1.25%||1.5%|
Some employers offer salary packaging and will pay directly for items and services on your behalf rather than paying a cash salary. Common things that are salary packaged include cars, computers, child care and additional
contributions into superannuation. Salary packaging can reduce your taxable income however some salary package items may be considered fringe benefits and your employer will have to pay fringe benefits tax.
It is worth asking your employer if salary packaging is available and discussing with your adviser or accountant if it makes sense to you.