I really do think that the ATO has someone on the payroll who's whole job description is to come up with new names and acronyms!
Even though the two below have been around for a few years now, they still create confusion regarding their exact meaning. I thought that I would start my first series on listing some ATO terminology and clarifying what they actually mean.
Offsets - (formerly called rebates) This was one of those terms that was difficult enough to understand when they were all named 'rebate', but the ATO thought 'hey, let's really screw with their minds and change the name... of just some of them!'
Offsets (as well as those that remained named as 'rebates') are amounts allowed by the ATO to reduce the tax payable (but not the Medicare Levy). Their purpose is to provide tax relief for people who's situation may make the full payment of tax difficult (either because of low income or excessive expenses).
Some available offsets are:
- Low income offset (from 1 July 2007 anyone with taxable income under $30,000 will receive this)
- Dependant rebate (for single income families without dependants)
- Senior Australians offset
- Pensioner rebates
- Entreprenuers' tax offset (up to 25% of tax payable on any income from businesses whose turnover is less than $75,000 in total, if they are in the STS system)
- Medical expenses rebate (20% on out-of-pocket medical expenses after first $1,500)
- and many, many others
(Please note that some offsets are subject to shading ie: they reduce as income increases.)
Basically, offsets (rebates) reduce the amount of tax payable after it has been calculated on the taxable income.
Expenses - Reduces the taxable income and are allowable if they are associated with generating that income. There can be restrictions on what can be claimed and you will usually need to have receipts or records to prove (substantiate) them.
Unlike offsets (rebates) which come directly off the tax payable, deductions reduce the income to be assessed therefore you will ever only receive a tax benefit of the marginal tax rate.
For example - someone who has a taxable income of $70,000 has an expense for $100; the tax benefit they will receive will be $31.50 off their tax ($30 because they are in the 30% marginal tax bracket and $1.50 because they would have to pay the 1.5% Medicare levy).
Stay tuned for more terminology definitions.
