NSW Year 9 (5.2) - 2020 Edition
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7.02 Income
Lesson

When earning money, there are a few things we need to keep track of in order to know how much money we have in the present and how much we will have in the future.

While they may seem like complicated, adult-only topics, things like wages, income and tax are all quite simple in terms of mathematics.

 

Calculating income

Income is the technical term describing how much money is earned. When finding out how much money will be earned from a standard job, there are two main forms that information can take.

A wage is a rate of money earned per time period, usually hourly. The total amount earned is determined by how many time periods you end up working.

Conversely, a salary is a set amount that is earned over a given time period. Since the total amount earned by a salary is fixed, you can calculate an equivalent wage based on how much time you work for.

Exploration

Jade works for $35$35 hours in week with an hourly wage of $\$40$$40. Ben has an annual salary of $\$70000$$70000.

Assuming that there are $52$52 weeks in a year, who earns more per week?

We can calculate Jade's weekly income by multiplying her hourly wage by the number of hours she works in a week. Doing this, we get:

$\text{Weekly income (Jade)}=35\times40$Weekly income (Jade)=35×40$=$=$1400$1400

To calculate Ben's weekly income, we can divide his annual salary (his yearly income) by the number of weeks in a year. Doing this, we get:

$\text{Weekly income (Ben)}=70000\div52$Weekly income (Ben)=70000÷​52$=$=$1346.15$1346.15

From our calculations, we can see that Jade earns slightly more than Ben per week.

In addition to wages and salaries, income can also be affected by bonuses or rate increases for working overtime. For example, 'double time' means that the usual wage rate is doubled.

Using these types of information and calculations, we can find a person's yearly income, which is also referred to as gross annual income. This value is important for when we want to start calculating tax.

 

Taxable income and tax deductions

Taxable income is the amount of money earned in a year that the government uses to calculate tax. This amount represents the amount of money earned that a person can spend freely.

The money earned that is not spent freely can be referred to as tax deductions. Tax deductions include work related expenses and donations.

Taxable income can be calculated by subtracting tax deductions from the gross annual income.

Summary

$\text{Taxable income }=\text{Gross annual income }-\text{Tax deductions }$Taxable income =Gross annual income Tax deductions

 

Different kinds of tax

There are different kinds of tax that need to be paid for different purposes.

Income tax is a public services tax that is calculated based on one's taxable income, in accordance with the different tax brackets.

Income tax

Income tax in Australia is currently calculated according to the table below:

Resident tax rates
Taxable income Tax on this income
$0-\$18200$0$18200 Nil
$\$18201-\$37000$$18201$37000 $19c$19c for each $\$1$$1 over $\$18200$$18200
$\$37001-\$90000$$37001$90000 $\$3572$$3572 plus $32.5c$32.5c for each $\$1$$1 over $\$37000$$37000
$\$90001-\$180000$$90001$180000 $\$20797$$20797 plus $37c$37c for each $\$1$$1 over $\$90000$$90000
$\$180001$$180001 and over $\$54097$$54097 plus $45c$45c for each $\$1$$1 over $\$180000$$180000

The medicare levy is a health services tax that is calculated as a flat percentage of one's taxable income. In Australia, this tax is currently equal to $2%$2% of one's taxable income.

Medicare levy

$\text{Medicare levy }=\text{Taxable income }\times2%$Medicare levy =Taxable income ×2%

GST is the goods and services tax paid on products like toys, electronics and furniture. GST in Australia is calculated as $10%$10% of the product's original price. GST does not apply to food.

GST

Since GST is added to the original price, we can calculate the sale price of items including GST using the formula:

$\text{Sale price}=\text{Original price}\times1.1$Sale price=Original price×1.1

 

Practice questions

Question 1

Derek is considering three different job offers, and wants to choose the one that will pay him the most, but they are all given at different rates:

  • Offer 1: $\$2917.00$$2917.00 per month
  • Offer 2: $\$955.73$$955.73 per week
  • Offer 3: $\$52170.00$$52170.00 per year

Help Derek work out which job to choose.

  1. What is his annual pay for Offer 1 at $\$2917.00$$2917.00 per month?

  2. What is his annual pay for job Offer 2 at $\$955.73$$955.73 per week? Give your answer to the nearest cent.

  3. Which job offer should Derek accept?

    Offer 3

    A

    Offer 2

    B

    Offer 1

    C

    Offer 3

    A

    Offer 2

    B

    Offer 1

    C
Question 2

Frank works as a chef. Because he wears a uniform for his job, he is able to claim the cost and cleaning of his uniform as an allowable tax deduction.

Frank’s work-specific uniform expenses are shown in the table below.

Uniform item Number of items Price per item (dollars)
Chef's checked trousers $2$2 $20.50$20.50
Chef's jacket $1$1 $25.00$25.00
Chef's hat $1$1 $7.85$7.85
Apron $1$1 $23.50$23.50
Protective shoes (pair) $1$1 $70.00$70.00

 

  1. For his uniform, Frank's total cleaning expenses for the year come to $\$52$$52.

    Calculate Frank’s total clothing and cleaning expenses for the year.

  2. Frank also spent $\$295$$295 on a set of knives and $\$15.75$$15.75 on a knife pouch. He can claim these as a tools and equipment expense because he uses them only for work.

    Calculate his total tools and equipment expenses.

  3. Calculate Frank's total allowable tax deductions.

  4. Frank earns $\$17.50$$17.50 per hour and works $40$40 hours per week.

    Calculate his annual gross income if he works $46$46 weeks in a year.

  5. Calculate Frank's taxable income.

Question 3

Last financial year, Lucy's taxable income was $\$84$$84$121$121.

Using the income tax rates shown in the table, evaluate the following.

Resident tax rates (2018-19)
Taxable income Tax on this income
$0-\$18200$0$18200 Nil
$\$18201-\$37000$$18201$37000 $19c$19c for each $\$1$$1 over $\$18200$$18200
$\$37001-\$90000$$37001$90000 $\$3572$$3572 plus $32.5c$32.5c for each $\$1$$1 over $\$37000$$37000
$\$90001-\$180000$$90001$180000 $\$20797$$20797 plus $37c$37c for each $\$1$$1 over $\$90000$$90000
$\$180001$$180001 and over $\$54097$$54097 plus $45c$45c for each $\$1$$1 over $\$180000$$180000
  1. Calculate the income tax payable on Lucy's income.

  2. Calculate the Medicare levy payable, given that it is $2%$2% of taxable income.

    Give your answer to the nearest cent.

  3. Calculate the total amount Lucy needs to pay in income tax and Medicare levy.

Question 4

The sales price of an item, including GST, is $\$26$$26. Calculate the price of the item without GST.

  1. Round your answer to the nearest cent.

Outcomes

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