As a primary producer, tax averaging evens out your income and tax payable over a maximum of five years to allow for fluctuations in prices and production. This ensures that you do not pay more tax over a number of years than taxpayers on comparable but steady incomes.
When your average income is:
- less than your taxable income (excluding capital gains) – you receive an averaging tax offset
- more than your taxable income (excluding any capital gains) – you must pay extra income tax.
The amount of the averaging tax offset or extra income tax is calculated automatically and your notice of assessment will show you the details.
You can choose to withdraw from the averaging system and pay tax at ordinary rates each year. If you have withdrawn from averaging it will be automatically re-instated after 10 years, after which time you can choose to withdraw from averaging again.
See also:
Tax averaging evens out your income and tax payable over a maximum of five years to allow for fluctuations. This ensures that you do not pay more tax over a number of years than taxpayers on comparable but steady incomes. When your average income is less than your taxable income (excluding capital gains) you receive an averaging tax offset.