Mathematics Standard • Year 11 • Module 3 • Lesson 7
Taxable Income and Allowable Deductions
Apply taxable-income reasoning to realistic Australian workplace expense scenarios, sort, sum, subtract, conclude.
Problem 1, Electrician's expense list
Daniel is a self-employed electrician. This financial year he earned $94,200 in gross fees and $310 in bank interest. His expense claims are: $1,820 work tools and equipment, $640 protective workwear and steel-cap boots, $480 professional indemnity insurance, $310 conventional shirts and trousers for client meetings, $1,180 commuting between home and his usual workshop, $220 donation to a registered DGR.
Set up: What are we solving for?
(i) Calculate Daniel's gross income. 1 mark
(ii) List which expenses are allowable and which are not, then calculate the total allowable deductions. 2 marks
(iii) Calculate Daniel's taxable income. 2 marks
Stuck? Revisit lesson § A Quick Filter for Testing Deductions, was it incurred earning income, is it private, was it reimbursed?Problem 2, Two teachers, same gross income, different deductions
Maya and Sienna both earn $82,600 in salary at the same school and both received $260 in bank interest. Their listed expenses differ:
Maya: $620 union fees, $440 work-related textbooks, $290 home-to-school train, $180 conventional clothes, $200 DGR donation.
Sienna: $620 union fees, $880 professional development course (Master of Education unit), $410 home-to-school train, $260 conventional clothes, $90 DGR donation.
Set up: What are we solving for?
(i) Calculate each teacher's total allowable deductions. 2 marks
(ii) Calculate each teacher's taxable income. 2 marks
(iii) Whose taxable income is lower, and by how much? State a clear conclusion. 1 mark
Stuck? Convert their differences into separate "Maya total" and "Sienna total" boxes, same calculation pattern, only the numbers change.Problem 3, Working backwards from a tax return
Anika is reviewing her completed tax return. The Notice of Assessment shows her taxable income as $58,420. Her salary was $59,800, she earned $260 in bank interest and $1,840 in rental income from a granny flat. Her receipts add to $2,150 in allowable expenses she claimed, but she suspects the figure on her return is wrong.
Set up: What are we solving for?
(i) Calculate Anika's gross income from all three sources. 1 mark
(ii) Use the reverse formula (Deductions = Gross − Taxable income) to calculate the deductions implied by her Notice of Assessment. 2 marks
(iii) Compare the implied deductions with Anika's $2,150 of receipts. By how much do they differ, and is her taxable income on the Notice too high or too low? 2 marks
Stuck? If the implied deductions are LARGER than her receipts, the ATO has subtracted too much, meaning her taxable income would be too LOW. Compare carefully.Problem 4, The "extra income" decision
Priya is a graphic designer earning $71,400 salary plus $180 in bank interest. Her current allowable deductions total $2,140. She is offered $4,200 of evening freelance design work (this would count as additional assessable income). Taking the work would also let her claim an extra $620 in genuine work-related expenses (a new design tablet and software subscription).
Set up: What are we solving for?
(i) Calculate Priya's current taxable income (without the freelance work). 1 mark
(ii) Calculate Priya's taxable income if she takes the freelance work and claims the extra deductions. 2 marks
(iii) By how much does her taxable income increase if she takes the work? Briefly explain why the increase is less than the $4,200 of extra freelance income. 2 marks
Stuck? The increase in taxable income = (extra income) − (extra allowable deductions).Problem 5, Spotting the non-deductible items in a receipt pile
A small-business bookkeeper is sorting expense claims from one staff member who earned $66,800 salary and $140 in bank interest. The staff member submitted the following expenses; the bookkeeper must include only the allowable ones:
$480 work boots (compulsory PPE) • $260 gym membership ("to stay fit for physical work")
$320 professional registration • $90 donation to a friend's GoFundMe (not a registered DGR)
$180 donation to a registered DGR • $740 daily train fare home-to-warehouse
$140 work-related textbooks • $410 PAYG tax withheld on payslips
Set up: What are we solving for?
(i) Tick or cross each of the 8 expense items. State briefly why each crossed item is not allowable. 2 marks
(ii) Calculate the total allowable deductions. 1 mark
(iii) Calculate the staff member's taxable income. 2 marks
Stuck? Revisit lesson § Misconceptions to Fix, donations only qualify if made to a registered DGR; PAYG is not a deduction.How did this worksheet feel?
What I'll revisit before next class:
Problem 1, Electrician
Set up. We are sorting expenses into allowable/not allowable, summing the allowables, then subtracting from gross income.
(i) Gross income = $94,200 + $310 = $94,510.
(ii) Allowable: tools $1,820 + protective workwear $640 + indemnity insurance $480 + DGR donation $220 = $3,160. Not allowable: conventional shirts/trousers $310 (private clothing); commuting $1,180 (home-to-regular workplace).
(iii) Taxable income = $94,510 − $3,160 = $91,350.
Problem 2, Maya vs Sienna
Set up. Same gross income for both; only deductions differ, so the taxable income gap equals the deductions gap.
(i) Maya allowable: union $620 + textbooks $440 + DGR $200 = $1,260. (Train and conventional clothes not allowable.)
Sienna allowable: union $620 + PD course $880 + DGR $90 = $1,590. (Train and conventional clothes not allowable.)
(ii) Gross income (both) = $82,600 + $260 = $82,860.
Maya taxable income = $82,860 − $1,260 = $81,600.
Sienna taxable income = $82,860 − $1,590 = $81,270.
(iii) Difference = $81,600 − $81,270 = $330. Sienna's taxable income is lower by $330 because she claimed $330 more in deductions.
Problem 3, Working backwards
Set up. We rearrange the formula to find the deductions implied by the Notice of Assessment, then compare with Anika's actual receipts.
(i) Gross income = $59,800 + $260 + $1,840 = $61,900.
(ii) Implied deductions = $61,900 − $58,420 = $3,480.
(iii) Implied $3,480 is $1,330 higher than Anika's receipts of $2,150. So the Notice has subtracted $1,330 too much from gross income, meaning her taxable income is $1,330 too low on the Notice. She should expect a correction that increases her taxable income (and her tax bill).
Problem 4, Freelance work decision
Set up. We compare Priya's taxable income before and after the freelance work + extra deductions.
(i) Gross now = $71,400 + $180 = $71,580. Taxable income now = $71,580 − $2,140 = $69,440.
(ii) New gross = $71,580 + $4,200 = $75,780. New deductions = $2,140 + $620 = $2,760. New taxable income = $75,780 − $2,760 = $73,020.
(iii) Increase = $73,020 − $69,440 = $3,580. This is less than $4,200 because the $620 of extra allowable deductions reduces the net addition to taxable income: $4,200 − $620 = $3,580. The deductions partially offset the new income.
Problem 5, Bookkeeper's expense sort
Set up. Sort each receipt, total the allowables, then apply the taxable-income formula.
(i) Allowable ✓: work boots $480, professional registration $320, registered DGR donation $180, work-related textbooks $140.
Not allowable ×: gym membership $260 (private); friend's GoFundMe $90 (not a registered DGR); home-to-warehouse train fare $740 (ordinary commuting); PAYG tax withheld $410 (prepayment of tax, not an expense).
(ii) Total allowable = $480 + $320 + $180 + $140 = $1,120.
(iii) Gross = $66,800 + $140 = $66,940. Taxable income = $66,940 − $1,120 = $65,820. (Common error: including the $410 PAYG as a deduction, it would falsely reduce the figure to $65,410.)