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.)