Overview
Canwi groups all income sources in a given year into Total Gross Income / Inflows. We also track whether an income source is taxable. For example:
Wages, rental income, and investment returns are taxable.
Gifts, windfalls, and certain government payments are not taxable - they will be counted in Total Gross Income but excluded from Assessable Income.
How Canwi calculates your Tax
To keep things simple, Canwi follows the same tax rules used by the Australian Tax Office (ATO)
All assessable income is grouped together for each person - wages, rental income, and capital gains (we assume a CGT discount of 50% in all cases) are all included in the same tax calculation.
Deductions (such as investment property expenses) are applied automatically to reduce Taxable Income.
Tax is calculated progressively, with each portion of income taxed at its corresponding bracket.
Offsets (such as the Low and Middle Income Tax Offset) are not currently calculated - at this stage Family Tax Benefits A & B are also not currently calculated.
How Income Tax works in Australia
Australia uses a progressive tax system, meaning not all your income is taxed at the same rate. Instead, tax is applied in brackets, with higher rates only applying to the portion of income that falls into higher brackets.
Income tax is applied to an individual's taxable income and is paid on all forms of income. This includes wages from your job, profits from business, and returns from investments. Income tax can also apply to assets such as when a house or shares are sold.
Simple Example: How a Taxable Income of $150,000 is taxed
If you earn $150,000, your income is split across multiple tax brackets:
The first $18,200 is tax-free.
The next portion ($18,201 – $45,000) is taxed at a lower rate (16%).
The next portion ($45,001 – $135,000) is taxed at 30%.
The final portion ($135,001 – $150,000) is taxed at 37%.
💡 A common misconception is that earning more pushes all your income into a higher tax rate. In reality, only the portion in the higher bracket is taxed at that rate.
We end up paying a total of $36,836 in tax, which is an effective tax rate of ~25%.
How Capital Gains Tax (CGT) Actually Works
Another area of confusion is Capital Gains Tax (CGT). Many people assume CGT is a separate tax, but it’s not - it’s simply treated as another form of income.
When you sell an asset (like shares or property) for more than you bought it, the profit (capital gain) is added to your taxable income for that year.
If you’ve held the asset for more than 12 months, you may be eligible for a 50% discount, meaning only half of the gain is taxed.
Example: How Capital Gains Are Taxed
You earn a $120,000 salary.
You sell shares and make a $20,000 capital gain (after the CGT discount).
Your total taxable income becomes $140,000, and tax is applied progressively just like salary income.
This means capital gains don’t have a separate tax rate - they just increase your total taxable income and are taxed using the same marginal tax brackets.