Author Alan Maddick 10th March 2021
In Australia we have a very complex tax system built up over many years with its own unique Language. The basic maths of Tax in Australia is;
Assessable Income less Allowable Deductions equals Taxable Income.
The tax payable is calculated on your Taxable Income not your Assessable Income. So what is your Assessable income? Section 6-5 of the Income Tax Assessment Act 1997 defines your Assessable Income as “Income according to ordinary concepts” So what are “Ordinary Concepts” the definition of Ordinary Income has built up over time in courts here in Australia as well as back in England as much of our Law is based on early English Law.
To summarise Ordinary Income in plain English – it will generally be earned and be repetitive, for example you earn your wage and get paid it regularly. Bank Interest is earned and paid on a regular basis, these are Ordinary Incomes.
Some Income is not Ordinary for example a Capital Gain is a one off event, this sadly does not mean that this income will be tax free :( There are various sections of the Tax Act that define Income that is not Ordinary such as Capital Gains or a one off Government Grant. This Income which is defined not by Ordinary Concepts but rather by the Laws or Statutes is called Statutory Income.
So your Assessable Income is made up of two parts – your Ordinary Income + Income specifically defined by the law.
In another Article I will talk more about Allowable Deductions and how you can work out if something is an Allowable Deduction.
Here is an Article on Assessable Income for Business by the ATO