When navigating our Income Tax and Social Security systems, you may often hear the term Adjusted Taxable Income (ATI).  Whilst we are familiar with the term ‘Taxable Income’, we are also faced with the concept of ATI, but what does this refer to?

It is a key factor in determining eligibility for various Government benefits, but also used for the assessment of various other Australian Taxation Office liabilities.

1. What is Adjusted Taxable Income (ATI)?

Adjusted Taxable Income is a figure often used by Australian government agencies, such as Centrelink and the Australian Taxation Office.

Centrelink will use this figure to assess an individual’s or family’s entitlement to a range of benefits.

The Australian Taxation Office will use this figure to assess an individual’s or family’s entitlement to a range of offsets and additional liabilities.  To further complicate matters, the calculation of the ATI may vary dependent on the item assessed.  Other ATI variations include ‘Income for Surcharge’ purposes, ‘Repayment Income’

2. How will Centrelink use my ATI?

Centrelink will use your ATI to assess your eligibility for common payments, concessions and services such as Family Tax Benefit, Child Care Subsidy and Commonwealth Seniors Health Card eligibility.

Common payments are listed below:-

• Family Tax Benefit (FTB)
  FTB Part A and Part B payments often use ATI to determine how much support families can receive. ATI can influence both the rate and eligibility for these payments.
• Child Care Subsidy (CCS)
  For working parents, CCS helps cover a portion of childcare costs. Your ATI affects the percentage of childcare fees you can claim.
• Parental Leave Pay and Dad and Partner Pay
  These payments may also take ATI into account when determining eligibility thresholds.
• Youth Allowance, Austudy, and ABSTUDY
  If your children or dependants are studying or receiving allowances, your family’s ATI can play a role in deciding their eligibility and how much support they can receive.
• Low Income Supplements and Offsets
  In some instances, the ATO uses ATI to figure out if you qualify for certain tax offsets or concessions.
• Child Support
  For separated or divorced parents, ATI is crucial in determining child support obligations, ensuring that each parent contributes fairly based on their overall ability to support their children.

3. How does the Australian Taxation Office use my ATI?

In addition to determining eligibility for benefits, ATI (or variances of) can also impact potential additional tax liabilities and rebates administered by the ATO. The most common include the following:-

1. Medicare Levy Surcharge (MLS)

Individuals or families who earn above certain ATI thresholds and do not hold adequate private health insurance may be liable for the MLS. If your ATI exceeds these thresholds, you may face an additional surcharge on top of your Medicare Levy. The ATI for this purpose is called ‘Income for Surcharge’ purposes and is a variation of ATI.  It excludes some components of the ATI noted below such as tax free pensions and child support you have paid.

• Private Health Insurance Rebate

The private health insurance rebate is income tested. Your ATI influences the rebate percentage you can claim, have claimed or whether you are eligible for the rebate at all. ‘Income for Surcharge’ purposes (as per the Medicare Levy Surcharge) is used for this rebate.

• Government Study and Training Loan Repayments

For this assessment ‘Repayment Income’ is used to calculate the income threshold on which a compulsory repayment is made. Another variation of the ATI which excludes Deductible Personal Superannuation contributions, Tax Free Government Pensions and Benefits, and Child Support payments, but includes exempt foreign employment income.

• Various ATO Offsets

Some offsets (such as the base amount of Zone or Overseas Forces Tax offset, Invalid and Invalid Carer Offset) may depend on ATI thresholds rather than strictly on taxable income

• Entitlement to Government Super Contributions

The Government may make additional contributions to your Super if you are eligible based on your ATI.

• Key Components of ATI

While every program can have slightly different requirements, Adjusted Taxable Income typically incorporates:

1. Taxable Income
   This is the starting point: your gross income minus any allowable deductions, as per your annual income tax return.
2. Total Reportable Fringe Benefits
   Many employees receive non cash benefits such as a company car or other salary packaged benefits.  Where these benefits exceed a certain threshold, they get added back to your ATI as ‘Reportable Fringe benefits.’
3. Reportable Employer Superannuation Contributions
   If you make certain additional super contributions (such as salary-sacrificed contributions), these may be factored into your ATI. The logic is that while you are reducing your immediate taxable income by contributing more to super, it is still considered part of your overall financial capacity.
4. Deductible Personal Superannuation Contributions

If you make personal superannuation contributions and claim these as an income tax deduction, these are added back to calculate your ATI.

1. Net Financial Investment & Rental Property Losses
   This includes any net rental property losses or losses from shares and other investments. If your property or share investments are running at a loss and you claim those losses as a deduction to reduce your taxable income, they may be added back to calculate your ATI.
2. Tax-free Government Pensions/Benefits
   Some tax-free government benefits, like certain forms of disability support or overseas pensions, can be included in the ATI calculation depending on the benefit or payment in question.
3. Child Support You Paid

Any child support payments you have provided are considered in the overall calculation of ATI.

Combining these items provides a more inclusive measure of your actual financial position. If you are receiving or applying for income tested benefits, always check whether your eligibility is determined by your ordinary taxable income or by your Adjusted Taxable Income.

• Why is ATI Used?

The Government’s primary reason for using ATI is fairness and accuracy. A person’s basic taxable income might not fully reflect their actual spending power or resources. For instance, if someone reduces their taxable income by:

• Salary sacrificing into super, or
• Claiming large rental property losses, or
• Receiving fringe benefits that supplement their take-home pay,

they effectively have more financial resources than their Taxable Income suggests. The ATI calculation aims to capture those additional financial resources for a fairer method of assessing eligibility to various entitlements and payments.

• Keeping Track of Your ATI

Because ATI involves more than the figure on your Income Tax Return, it is essential to:

• Keep records of your fringe benefits statements
• Track your investment income and losses
• Note reportable super contributions (e.g., salary sacrifice)
• Inform the relevant government agency (such as Centrelink) if any of these details change

When completing forms for Family Tax Benefit or Child Care Subsidy, you will often be asked to estimate your ATI if you cannot provide exact figures yet. Providing the most accurate estimate possible helps avoid overpayments or underpayments—and potential debts that arise if you receive more benefits than you are entitled to.

Conclusion

Adjusted Taxable Income is a more comprehensive measure of your financial resources than standard taxable income alone. Knowing how ATI is calculated, why it’s used, and which benefits it affects can help you make informed decisions about your family’s finances—and avoid the surprise of overpayments or missing out on subsidies.

As mentioned above, the calculation is not straight forward and there are variations for different purposes.

If you are uncertain about how to calculate your ATI or how it may affect you, do not hesitate to contact us for further assistance and guidance.

 

Author: Anita Klumpp
Email: [email protected]

 

Proposed changes to HELP

If you’ve been following the news, you may have seen that Labor has proposed changes to the Higher Education Loan Program (HELP). These changes could affect anyone with a HELP loan, including those with Apprentice Support Loans and VET Student Loans. While these changes are not yet law, it’s important to stay informed, as they could significantly impact your repayments.

Proposed changes to HELP loans

Here’s a summary of the key proposals:

1. 20% reduction in loan balances:
   Starting June 1, 2025, all HELP loans, Apprentice Support Loans, and VET Student Loans will be reduced by 20%.
2. Changes to HELP repayment calculations:
   Starting July 1, 2025, the calculation for HELP repayments will change. The minimum income threshold will increase to $67,000, and the repayment rate will shift from a fixed rate to a marginal rate.

These changes build on an earlier adjustment to HELP loan indexation, where the rate was capped at the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI). These changes were passed late last year and were applied retroactively to the 2023 and 2024 periods.

Are these changes set in stone?

As of now, these changes are not law yet. It’s expected that any new legislation for the proposed 20% reduction and repayment changes won’t be introduced until after the election. This means that the changes may only become law if Labor remains in office and is able to pass the legislation.

While these changes are possible, uncertainty remains. It’s important to stay updated on any developments.

What should you do if you have a HELP debt?

If the 20% reduction in your HELP loan balance goes ahead, there are a couple of things you might want to consider:

1. Delay Voluntary Payments:
   If you’re planning on making voluntary repayments, consider holding off until after June 1, 2025, to benefit from the 20% reduction. Waiting could result in a significant decrease in your outstanding balance.
2. Consider Deferring Your 2024 Tax Return:
   Another strategy to consider is holding off on lodging your 2024 Income Tax Return (ITR) until after June 1, 2025. This would delay your HELP repayment until after the 20% reduction takes effect. However, this option carries some risks. There’s uncertainty about whether deferring repayments will be allowed, and it may depend on how the legislation is structured.

Weighing the risks

Given the uncertainty around these proposed changes, it’s important to carefully weigh your options. While the potential 20% reduction is an attractive proposition, there’s no guarantee that the legislation will pass, and there are no specifics on how it will be implemented.

Stay in touch with your accountant or financial advisor to ensure you’re making the best decisions based on your personal circumstances.

Related blogs:

Student Loans

Author: Matthew Prawirohardjo
Email: [email protected] 

 

The Small Business CGT (Capital Gains Tax) Concessions are designed to provide tax relief to the owners of small businesses when they sell shares in a business, goodwill, or property. If a small business can access these concessions, then it makes it easier for the business owners to retire from, or re-structure their business. There are certain conditions that a business and the individual must meet to access the concessions, briefly outlined below.

1. Small Business Entity Test

Firstly, the business must be a small business entity, meaning that the business must have an aggregated turnover of less than $2 million in the year the concession is claimed. Aggregated turnover is the total income of the business, and any connected entities or affiliates.

2. Active Asset Test

Secondly, the asset being sold must be an active asset, meaning that the asset must be used while carrying on a business. Examples may include, machinery or equipment, vehicles, shares in a small business or goodwill. If the asset is held primarily for investment purposes (e.g., rental property), it won’t meet this test.

3. Significant Individual Test

Thirdly, the individual claiming the CGT concession must satisfy the significant individual test. This means the individual must have an ownership interest in the business, usually at least 20%, either directly or through entities such as a trust or company. This ensures that the test benefits those with a material stake in the business, rather than passive investors.

If the above conditions have been met, then the CGT concessions are able to be accessed, provided they meet the further requirements related to the concession they wish to use. Here is a look at the available concessions:

The 15-Year Exemption

The most beneficial/desired concession is the 15-year exemption, which allows the full CGT liability to be waived if the business has been owned for at least 15 years and the owner is aged 55 or older.

50% Active Asset Reduction

The 50% active asset reduction effectively reduces the capital gains, and the corresponding tax payable by 50%. This concession can be used in conjunction with other concessions, such as the retirement exemption or the rollover relief, if you qualify.

Retirement Exemption

The retirement exemption provides a CGT exemption up to a lifetime limit of $500,000, provided that the money is being used to fund retirement. If the individual in question is under the age of 55, the amount must be paid into a super fund.

Rollover Relief

The rollover relief concession provides a deferral from paying CGT, provided that a replacement asset is purchased within two years. Tax will be paid when the replacement asset is sold or disposed of.

The Small Business CGT Concessions can be an important tool to reduce tax liabilities when selling a business or its assets. However, understanding what is required to access these concessions, and when they are available to you is essential to maximise the tax benefits. The Small Business CGT Concession rules can be complex, especially where trust and companies are involved, so it’s important that you get some advice before making any decisions.

Author: Molly Ingham
Email: [email protected]

As a not for profit organisation, your credibility rests on your reputation for integrity.  Transparency and rigour in all your financial dealings is crucial to maintaining your good standing in the community and amongst donors. Good governance can be one of your most productive assets.

That’s why it’s a good idea to have a rotation of auditors every five to seven years.

The Companies Act 2013 specifies that publicly listed companies and certain categories of private companies must rotate their auditors after a period of ten consecutive years – an indication of the importance the legislature places on the concept of rotation.

The thinking behind this is that after a period of years performing audits for any company or organisation, it’s possible that the auditor will begin to find the task routine. Certain aspects of the audit may seem familiar, and therefore appear to merit less attention. Regardless of the professionalism and commitment of the auditor, changes can be missed, and mistakes can be made.

Rotating your auditor after a period is not a reflection on them, but a sign of your commitment to rigour and transparency. A new auditor can bring a fresh perspective to the task, and strengthen its independent nature.

Consider the relationship you have with your current auditor, and the length of time that auditor has been completing the same task. Would your organisation benefit from a brand new set of eyes and a truly objective point of view? Could your current auditor’s independence and objectivity be compromised by the long-standing relationship? Is your current auditor adding value to the organisation through the audit process?

If you would like to discuss your organisation’s auditing needs, or have any questions on the benefits of audit rotation please call me on 9335 5211 or email [email protected].

Related blogs:

NFP annual reporting requirements

Author: Daniel Papaphotis
Email: [email protected]

Personal Services Income, or PSI for short, arises when an individual earning income other than employment income is deemed to be primarily using their personal skills and efforts as an to derive the income, rather than through the use of assets or products. More specifically, if 50% or more of a person’s business income for the financial year is earned in relation to the individuals skills or efforts, then all of the income is deemed as PSI and will be subject to the tax rules relating to this. In other words, if 50% or less of the business income derived during the financial year is due to the use of the business’s assets and structure or the production and sale of goods, then the income will not be deemed as PSI and will benefit from the taxable income rules relating to a business.

By way of example, a computer programmer is likely to make income mostly from their skills and would earn PSI. An owner/driver of a truck is more likely to earn income from the use of the asset – therefore not PSI.

When determining whether income is deemed to be PSI, it is important to note that companies, partnerships and trusts who earn PSI indirectly through the skills and efforts of individuals are also subject to similar rules and are known as “Personal Service Entities.” Refer to the below link for further details on the steps involved in determining whether your business is considered to be a PSE:

https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income/working-out-if-the-psi-rules-apply/work-out-if-the-psi-rules-apply-to-you

Occupational fields that are more likely to derive PSI income include financial professionals, consultants, engineers, construction and trade workers, and medical practitioners. Income earned under a salary and wages agreement with an employer are not considered PSI, along with the supply and sale of goods. Following this, if the business income is derived specifically from the use of assets, such as a forklift operator hiring out his services along with the forklift hire where the hire of the forklift derives majority of the income from the contract, then the income is not deemed to be PSI. Finally, factors relating to the business structure, such as the number of employees, operation size and activity nature, can be used to determine whether the income is truly being derived in a “business nature” and, therefore, whether the PSI rules would apply.

If your income is determined to be PSI, it is important to note the effects that this will have on your income tax return. Firstly, you are not able to claim a deduction for certain expenses that might otherwise be allowable including rent, mortgage interest, council rates and land tax of your residence, along with other typical business deductions, such as payments to or for associates who perform non-principle work and entertainment.  If your business meets the conditions to be considered as a Personal Service Business (PSB), then your claimable deductions will not be limited to the PSI rules. For further details on how to determine whether your business is considered a PSB, please follow the below link

https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income/working-out-if-the-psi-rules-apply/self-assessing-as-a-psb

PSI, whether earned by an individual or through a PSB, should be assessed for income tax solely in the name of the individual.

Related blogs:

Personal Services Income (PSI)
The sharing economy and taxation

Author: Isabella Moncrieff
Email: [email protected]