Tax averaging enables you to even out your income and tax payable over a maximum of five years to allow for good and bad years. This ensures you don’t pay more tax over time than taxpayers on comparable, but steady, incomes.
Your basic taxable income is your taxable income excluding:
- net capital gains
- certain superannuation lump sums and death benefit termination payments
- above-average income of an author, inventor, sportsperson or other special professional.
Deductions excluded under the non-commercial loss provisions are excluded from the calculation of basic taxable income.
The amount of the averaging tax offset or extra income tax is calculated automatically and your notice of assessment will show you the averaging details.
When your average income is less than your basic taxable income you receive an averaging tax offset. When your average income is more than your basic taxable income you must pay extra income tax on the averaging component of your basic taxable income.
Averaging calculations require you to have primary production income or loss (excluding a non-commercial loss) in the years subject to averaging. The calculations won’t start until the first year that your basic taxable income is greater than or equal to the year before. This means that your first averaging adjustment is always a tax offset (or NIL).
Find out about:
- Taxable primary production income
- Opting out of the averaging system
- Choosing to restart averaging in certain circumstances
- Working out tax payable with income averaging