Marginal Rate of Tax (MRT)
The marginal rate of tax or MRT is the percentage of tax you pay on the last dollar of income earned. It doesn’t mean that you pay that % overall, just on the last income bracket you fall into.
Tax rates 2014-15 (excluding the Medicare Levy of 2%)
|Taxable income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $80,000||$3,572 plus 32.5c for each $1 over $37,000|
|$80,001 – $180,000||$17,547 plus 37c for each $1 over $80,000|
|$180,001 and over||$54,547 plus 45c for each $1 over $180,000|
While someone on say $92,000 is in the 37% (39% with Medicare) marginal rate, in practice they would probably pay approx 25% of their income in tax. This is because some of their income incurs ZERO tax and some 19% and some 32.5%.
Tax liability is based on’ taxable income’ – gross income minus any allowable deductions.
Rental income from an investment property is considered income and as such is added to your taxable income BUT all the costs of ownership can be deducted from your gross income as can depreciation. The rate at which you can claim rebates from the ATO is at the highest marginal rate of tax that you fall into. ‘Tax minimisation’ through negatively geared property investment is a legal and ATO supported tax strategy.
It is important to keep accurate records of all expenses. A Quantity Surveyor’s Report (QSR) professionally prepared for every investment property is important to ensure that the maximum depreciation benefits are claimed.