The Exciting Parts of Marginal Tax Rates (MTR)
While most people are not overly excited by this subject, the engineer in me loves to optimise, and that includes the tax impact on my investment decisions. And to achieve that it helps to understand what the relevant MTR is. This is useful not only in the growth stage calculations of FIRE, but also in the RE part of it.
1. Basics
My best effort is this table, with the Extra Addons below.
| From | To | MTR | Notes |
|---|---|---|---|
| $0 | $18,200 | 0.0% | |
| $18,201 | $26,000 | 16.0% | |
| $26,001 | $32,500 | 28.0% | 10% Medicare** |
| $32,501 | $37,500 | 18.0% | 2% Medicare |
| $37,501 | $45,000 | 23.0% | 5% LITO |
| $45,001 | $66,667 | 33.5% | 1.5% LITO |
| $66,668 | $135,000 | 32.0% | |
| $135,001 | $190,000 | 39.0% | |
| $190,001 | $224,000 | 47.0% | |
| $224,001 | $250,000 | 63.70% | 16.7% DIV269* |
| $250,001 | $261,000 | 48.72% | 1.72% DIV269 |
| $260,001 | 47% |
*DIV293 depends on your Income + Super contributions plus some other funky things. If your income includes non-job income, like a capital gain, then figure this one out yourself. I have relied on this as my source: 62% effective marginal tax rate - AusHENRY - Reddit.
** Medicare Levy phases in at 10 cents in the dollar.
The Medicare levy phases in at a rate of 10 cents in the dollar where the taxable income or combined family taxable income exceeds the stated threshold amounts.
2. Extra Addons
2.1 Medicare Levy Surcharge
Not to be confused with Medicare Care Levy, the Surcharge is avoidable with Private Health Insurance.
1% to 1.5%, but go read up on it Medicare levy surcharge income, thresholds and rates - ATO.
2.2 Centrelink Benefits
I feel I'm risking my neck for suggesting to include Centrelink benefits, but oh well. The key part is knowing when to include them in your MTR calculation. For most decisions these have no bearing. The only place they can help is reducing income (like buying annual leave, going 4 days a week), donating to charity, and oddly enough Novated Lease for an ICE Car.
2.2.1 Childcare Subsidiary First Child
To calculate this one you need to know how much you are spending without any CCS. Then to convert to a MTR equivalent you do this:
= CC x 1% / $5000.
= CC x 1% / $5000.
e.g. If you spend $36,400 per year before the discount, then
= $36,400 x 1% / $5,000 = 7.28%
= $36,400 x 1% / $5,000 = 7.28%
2.2.2 Childcare Subsidiary Second Child Discount
If you are eligible for this one, the rate reduction kicks in later but with a higher MTR equivalent.
= CC x 1% / $3000.
e.g. = $36,400 x 1% / $3,000 = 12.13%
Now we are talking.
2.2.3 Cares Allowance
This one has a hard cutoff on Family Income of $250,000 where it goes from about $4k to $5k to $0 in an instant. As such, anyone earning say $10,000 over this amount has overall netted very little.
2.2.4 Family Tax Benefit Part A
FBT Part A reduces at 20% for a family income of $65,189 to $115,997, and 30% for over $115,997, but the rules around a base rate and other aspect makes this a little less clear cut.
2.2.5 Family Tax Benefit Part B
FBT Part B is not pro-rated, and is a hard cut off at $117,194.
3. Discounts
3.1 Seniors and Pensioners Tax Offset
There are no doubt any number of other discounts, and its beyond my need to include them in this post.
4. Extreme Rates
So how hard can we go with all this information to stack an EXTREME MTR? Lets see.
I give the winner to a DIV293 of 63.7% stacked with no private health insurance and with 3 kids under 5 (an achievement I give a 🏆 to on its own) in full time care of $36,400, we get:
=63.7% + 1.5% + 7.28% + 12.13% + 12.13% = 96.74%
=63.7% + 1.5% + 7.28% + 12.13% + 12.13% = 96.74%
Luckily this one only lasts for a short window of $26K that the winner will need to push through to the magical richness beyond, when it drops to only 80.04%. Or, they can kick back and take some extra leave knowing this information.
Disclaimer: While a little effort and then some went into getting this right, I probably didn't. So do your own research and crunch your own math's.
All information on this website is for general information only and should not be taken as constituting professional advice. I am not a licensed financial adviser, and therefore cannot give personal financial advice, financial recommendations, or even general financial advice. The sole purpose of our content is not to provide financial advice but to provide factual information for educational purposes only. You should consider seeking independent legal, financial, taxation or other advice to check how the information on this website relates to your unique circumstances.
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