How Individual Tax Rates Work
The amount of income tax and the tax rate you pay depends on how much you earn as well as your circumstances. In simple terms, the more you earn, the higher your rate of tax. As the rates change year-to-year, it’s helpful to take a look at the upcoming period so you know what to expect. In particular, new changes to the Medicare levy threshold and low and middle income offset may affect you.
Rates from June 2021 – June 2022
*The above rates do not include the Medicare levy of 2%
Medicare levy threshold and rates
Your Medicare levy is reduced if your taxable income is below a certain threshold; in some cases, you may not have to pay the levy at all. As of the 2021 income year, the Medicare levy low-income threshold is increasing for singles, families, seniors, and pensioners.
- Singles — from $22,801 to $23,226.
- Families — from $38,474 to $39,167. For each dependent child or student, the family threshold will be increased by an additional $3,597 (previously $3,533).
- Single seniors and pensioners — from $36,056 to $36,705.
- Family seniors and pensioners — from $50,191 to $51,094.
Retaining the low and middle income offset
A tax offset is a financial benefit from the Government that reduces the amount of tax you pay on your taxable income. Although it was due to be removed from July 1 this year, the Government will be retaining the low and middle income tax offset (LMITO) for one more income year, making it available for the 2022 income year.
You don't need to complete separate form or section in your tax return to get this tax offset — the ATO works out the amounts on your behalf when you lodge your tax return (if you’re eligible). As always, in order to benefit from this offset you need to be an Australian resident for income tax purposes, pay tax on your taxable income, and that income needs to be below certain income thresholds.
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If your business provides a car to an employee (or you’re the business owner/employee using it), there’s a good chance the Fringe Benefits Tax (FBT) rules apply. A car fringe benefit arises when a car owned or leased by an employer is made available for the private use of the business owner, an employee or their associate (such as a family member). “Private use” doesn’t just mean weekend road trips — it can include everyday commuting and even cases where the car is parked at an employee’s home, making it available for personal trips. Understanding how FBT is calculated and what records to keep is essential for compliance — and for avoiding paying more tax than necessary. What counts as a “car” for FBT purposes? The FBT law defines a car as a motor vehicle (except a motorcycle or similar) designed to carry less than one tonne and fewer than nine passengers. From 1 July 2022, some zero or low-emission vehicles are exempt from FBT, provided they meet certain criteria — for example, they must be first held and used after 1 July 2022 and must not have attracted Luxury Car Tax. Electric vehicle running costs, such as charging, are also exempt when the vehicle itself qualifies. Two main methods for calculating FBT on cars There are two ways to calculate the taxable value of a car fringe benefit. 1. Statutory formula method This method applies a flat 20% statutory rate to the base value of the car, adjusted for the number of days in the FBT year the car was available for private use. The formula is: (A × B × C ÷ D) − E A = Base value of the car (cost price plus GST and certain accessories, less registration, stamp duty and eligible reductions) B = Statutory fraction (generally 20%) C = Days available for private use D = Total days in FBT year (365) E = Employee contributions If the car has been owned for at least four full FBT years, the base value can be reduced by one-third. 2. Operating cost method This method calculates the taxable value by applying the private use percentage to the total operating costs of the car (actual and deemed costs). The formula is: Taxable value = [Operating costs × (100% − Business use %)] − Employee contributions Operating costs include: Fuel, oil, repairs, maintenance, registration and insurance Lease costs (for leased cars) Deemed depreciation (25% diminishing value) and deemed interest for owned cars Certain costs, such as tolls, car parking and insurance-funded repairs, are excluded. The business use percentage is determined by odometer readings, logbook records, and a reasonable estimate based on usage patterns. The three-month logbook requirement (operating cost method only). If you use the operating cost method, you must keep a logbook for at least 12 continuous weeks (roughly three months) to record: The date of each trip Odometer readings at the start and end Total kilometres travelled Whether the trip was for business or private purposes The purpose of each business trip This logbook is generally valid for five years, but you must start a new one if usage patterns change significantly (e.g., a role change, relocation or different duties). You also need to record odometer readings at the start and end of each FBT year. Why record-keeping matters. Keeping accurate records can support a higher business use percentage (and therefore a lower FBT bill). They also ensure you claim only legitimate business kilometres and help you provide evidence if the ATO reviews your FBT calculation. Finally, your records help you decide which calculation method (statutory or operating cost) is more tax-effective. Key takeaways for businesses and employees. If a car is available for private use, FBT may apply — even if the car isn’t driven often for personal trips. Electric cars may be FBT-exempt if they meet eligibility criteria, but you may still need to calculate their taxable value for reporting purposes. The operating cost method often works better if business use is high — but only if you have a compliant logbook. Keep odometer readings, expense records and a valid logbook to support your claims. Need help with your FBT obligations? Get it at Ascent Accountants. We guide business owners through every step of FBT compliance — from choosing the right valuation method to maintaining the right records for ATO peace of mind. If you provide cars to employees or use a company vehicle yourself, now is the time to review your FBT position before the next FBT year rolls over. Let’s talk .
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