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Income Tax Estimate - For Sole traders
How is my Income Tax Estimate calculated?
How is my Income Tax Estimate calculated?

We calculate your Income Tax Estimate using your Expected Annual Income, Income and Tax Deductible Expenses

Cindy Cui avatar
Written by Cindy Cui
Updated over a week ago

Your Income Tax Estimate is calculated using your:

  • Expected Annual Income: we use this to estimate your Blended Tax Rate

  • Income: Any transactions that you’ve categorised as business income

  • Tax Deductible Expenses: Any transactions that you’ve flagged as tax deductible

First, you set your Expected Annual Income. We use this to identify your expected income tax rate brackets. These tax rate brackets are then used to calculate your expected Blended Tax Rate - the percentage of tax you will pay if your taxable income for the tax year meets your estimate.

As you categorise income and flag tax deductible expenses, your Income Tax Estimate will change in real time in the Parpera App.

We calculate your Income Tax Estimate using the following formula:

Blended Tax Rate x (Income - Tax Deductible Expenses)

Wondering how this works in a real scenario?

Example scenario A

If you enter your Expected Annual Income as $80,000, your Blended Tax Rate will be 20.58% (based on the income tax rate brackets for someone who earns a taxable income of $80,000 during the tax year). Given you haven’t categorised any transactions as business income and you haven’t tagged any transactions as Tax Deductible Expenses, your initial Income Tax Estimate will be $0.

If you then categorise a transaction of $1,000 (ex. GST) as business income, your Income Tax Estimate will become $206.

If you then tag a transaction of $100 (ex. GST) as tax deductible, your Income Tax Estimate will become $185.

Example scenario B

If you enter your Expected Annual Income as $80,000, your Blended Tax Rate will be 20.58% (based on the income tax rate brackets for someone who earns a taxable income of $80,000 during the tax year). Given you haven’t categorised any transactions as business income and you haven’t tagged any transactions as Tax Deductible Expenses, your initial Income Tax Estimate will be $0.

If you then categorise a transaction of $1,100 (incl. GST) as business income, your Income Tax Estimate will become $206.

If you then tag a transaction of $110 (incl. GST) as tax deductible, your Income Tax Estimate will become $185.

Example scenario C

If you enter your Expected Annual Income as $50,000, your Blended Tax Rate will be 13.43% (based on the income tax rate brackets for someone who earns a taxable income of $50,000 during the tax year). Given you haven’t categorised any transactions as business income and you haven’t tagged any transactions as Tax Deductible Expenses, your initial Income Tax Estimate will be $0.

If you then categorise a transaction of $5,000 (ex. GST) as business income and you haven’t tagged any transactions as tax deductible, your Income Tax Estimate will become $672.

If you then tag a transaction of $500 (ex. GST) as tax deductible, your Income Tax Estimate will become $605.

Please note that the Income Tax Estimate should be used as an estimate only and is based on a number of assumptions and inputs which include:

  • You’re an Australian tax resident and are not a working holiday maker

  • The income and deductions flagged by you within the Parpera App

  • The income and deductions used in the calculation are GST exclusive

  • Transactions you flag as tax deductible are in fact tax deductible according to the ATO

  • The applicable individual income tax rate brackets for the current FY as listed by the ATO

  • The full amount of an asset sale is taxable at your Blended Tax Rate (the Tax Estimate does not consider any applicable concessions or deduct the cost base)

The Income Tax Estimate is limited as it does NOT consider:

  • Other sources of taxable income (other sources may include fringe benefits, investment income, distribution from trusts, early termination payments, etc)

  • Concessions to tax payable on capital gains or losses including any cost base applicable to any asset sale

  • Tax credits, offsets or surcharges (e.g. medicare levy surcharge)

  • HECS, HELP, SSL or TSL repayment or SFSS repayment

  • Superannuation contributions, withdrawals, income or other transactions

For more information on taxes, we recommend you speak with a registered tax agent or visit the ATO website.

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