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7 For more information about recent changes to individual tax reporting items, and related summary statistics, please see the ATO publication, Taxation Statistics, 2012-13. There may be slight differences between the aggregates published by the ATO and those presented here, due to differences in data extraction times, data refinements applied, and the impact of late tax returns.
8 Data on income reported by children aged under 15 years are included in the aggregates for the first time, covering aspects such as employment income, investment income and other sources.
9 As mentioned in paragraph 5, ABS has recently received access to de-identified unit record file information, which enables the direct geo-coding of personal income data to small geographic regions. Previously the data were supplied by the ATO as postcode aggregates, which required ABS conversion to ASGS or LGA using Correspondences.
10 Such changes have influenced the decision to start a new time series with 2012-13 data; a break with information previously published and an opportunity to build a new harmonised data series with better data comparability over time.
NEW CONTENT AND INDICATORS
Net capital gains
11 Net capital gains and related medians for selected regions are featured in this publication for the first time. A capital gain is the profit that results from the sale of a capital asset, where the sales price exceeds the purchase price and attracts capital gains tax. Conversely, a capital loss can arise if proceeds from a sale are less than the original purchase price. Capital losses can be carried forward and used against capital gains in future years to reduce the net capital gain amount, however a net capital gain can never be a negative amount, and any unused losses continue to be carried forward. Therefore, net capital gains is used in this publication, which is the amount after capital losses from that year or previous years have been deducted.
12 Capital gains cover the sale of assets such as: land, units in a unit trust and other investment properties, company shares, licenses, rights, options and leases; various collectables (paintings, antiques, coins, jewellery and similar) with an original market value of over $500; and personal use assets such as boats, furniture and electrical goods with an original value of over $10,000. More ATO information on this topic is available from Capital Gains and Exemptions.
13 Net capital gains are not part of the existing ABS investment income, other income or total income framework, but are presented here as supplementary information of interest.
15 The Gini coefficient is provided here for total income (excluding Government pensions and allowances). This is a single statistic that lies between 0 and 1 and is a summary indicator of the degree of inequality in income between tax form lodging population. Values closer to 1 represent greater inequality.
16 The Gini coefficients shown in this publication can be regarded as indicative but not definitive. They should not be directly compared with apparently similar ABS information at state/territory level, as per Household Income and Wealth, Australia, 2013-14. The Gini coefficients presented in this publication are also calculated from gross personal income and not from equivalised disposable income as presented in Household Income and Wealth, Australia, 2013-14. There is also an acknowledged under-coverage of certain income groups in taxation data due to tax exemptions, and people being under the $18,200 reporting threshold. For instance, persons aged 60 years and over who are mostly dependent on superannuation income from a taxed source, or those mostly reliant on Government pensions and allowances, may be missing from the tax data. There are also instances of tax forms being lodged up to 3 or 4 years late. For more information, see paragraphs 37-40 in the Explanatory Notes of the previous issue of this catalogue.
17 From another perspective, the coefficients have been included to demonstrate the finer regional data capability afforded by the ATO personal income tax data set. The majority of sample surveys with an income aspect cannot support the production of reliable estimates for granular geographies such as SA2, SA3 or LGA.
18 Personal income data derived from the taxation dataset are presented in percentiles for the first time. When all persons in the tax form lodging population are ranked from the lowest to the highest based on a common characteristic such as total income, they then can be divided into equal sized groups. Division into 100 groups gives percentiles. For example, the highest value of the characteristic in the twentieth percentile is denoted P20. The median or top of the 50th percentile is denoted as P50. P20, P50 and P80 denote the highest values in the 20th, 50th and 80th percentiles respectively. Ratios of values at the top of selected percentiles, such as P80/P20, are termed percentile ratios.
19 Percentile ratios summarise the relative distance between two points in a distribution. To illustrate the full spread of an income distribution, percentile ratios often present points near the extremes of the distribution, for example as a P90/P10 ratio. However, for personal income tax data, the P80/P20 ratio is thought to better illustrate the magnitude of the range within which the income of the majority of people fall. The P80/P50 and P50/20 ratios focus on comparing the ends of the income distribution with the midpoint.
20 Access to more detailed ATO information has enabled the production of median income estimates. Median income is that level of income which divides the units in reference population into two equal parts, once half having incomes above the median and the other half having incomes below the median.
Australia Quartile Ranges
21 Similarly, income quartiles data are now possible. Quartiles are groupings that result from ranking all persons who lodged tax returns in ascending order according to total income, and then dividing them into four equal groups, each comprising 25% of the reference population. Australia's quartile ranges are used to compare the income distributions of regions to Australia.
22 Income share (% of income held by the top 1%, 5% and 10% of all earners, per region) has also been introduced. The aggregate income of the units in each percentile is divided by the overall aggregate income of the entire population to derive income shares.
Main Source of Income
23 Main source of income is the source from which a person derives most of their income. In this publication, main source of earners is presented as a proportion of the population in that region.
24 If a region is particularly reliant on one source, it may be susceptible to policy or economic changes that affect that income type - hence the inclusion. Where persons receive exactly the same amount across multiple sources of income, they have been excluded from the derivation of this indicator. Persons with negative or nil income total income have also been excluded.
Median Age of Earners
25 Median age by income type has been provided for all geographies in this publication. See paragraph 20 for explanation of medians.
26 All individual income tax statistics relating to the 2012-13 income year have been provided by the ATO and then geocoded to Statistical Area Levels 1 and 2 and Local Government Areas. The ABS has then suppressed those regional table cells with very small values or where a few records contribute most of a regional total. Apparent outlier values are treated to ensure more coherent data (less skewed values) at the regional level.
27 Other additivity characteristics (e.g. totals may not exactly match the sum of their components) also reduce the risk of deducing real values. Related geographic regions are checked for 'differencing' to ensure that suppressed values in region A cannot be deduced from region B, or a combination of other regions.
SCOPE AND COVERAGE
28 The main functions and responsibilities of the ATO are to administer taxation legislation and to collect a wide variety of taxes. The ATO therefore collects data from its reporting population as part of its processes to calculate income tax liability for those persons who are required to lodge an income tax return.
29 The ATO database covers all individuals who submit an individual income tax return and includes persons with income from one or more of a range of sources, such as wages and salaries, own unincorporated business, superannuation and annuities, investments and Government pensions, benefits or allowances. The scope of the ATO statistics presented in this release are data items relating to income standards the ABS uses for its income surveys. However the scope of the ATO statistics presented in this release exclude Government pensions, benefits or allowances.
30 All data presented are gross income before deductions (unless item is specified as net income, eg. net rent) - and before tax and the Medicare levy are applied.
31 Earners have been defined as persons who have submitted an individual income tax return and have received positive or negative income from one or more of the sources defined below in that financial year.
32 Employee income is the total (or gross) income received as a return to labour from an employer or from a person's own incorporated business (when they are employed by this business). This source of income includes the following data items on the individual income tax return:
Own unincorporated business income
33 Own unincorporated business income is the profit or loss that accrues to owners of, or partners in, their own unincorporated businesses. Profit or loss is the value of the gross output of the enterprise after the deduction of operating expenses, including reportable superannuation contributions, depreciation and operating costs, but before income tax is taken out. Losses occur when operating expenses are greater than receipts and are treated as negative income. This category includes the following data items from the individual income tax return:
34 The data excludes distributions from trusts for non-primary production activities as this may include aspects of investment income. It also excludes the income of working directors/owners of incorporated businesses who are classified as employees; consequently their income is included under employee income.
Superannuation and annuity income
37 Superannuation and annuity income includes the following data items on the individual income tax returns:
38 A change to legislation relating to superannuation, taking effect from 1 July 2007, meant that people aged 60 years and over who receive superannuation income in the form of a lump sum or income stream (such as a pension) from a taxed source, receive that income tax free. Therefore, these persons are not required to report this income at Q7-J or Q8-Q on their individual tax return. Also, if such persons have no other income, or their total income is below the tax-free threshold, then they are also not required to lodge a tax return.
39 Due to such changes, the superannuation estimates (persons, income) published in this publication are regarded as partial, subject to under-coverage. ABS is currently investigating ways of achieving fuller estimates for regions. A more comprehensive snapshot of superannuation income (at aggregate state/territory level) can be obtained from the ABS Survey of Income and Housing - see Household Income and Wealth, Australia, 2013-14.
Other income (excluding Government pensions and allowances)
40 Other income (excluding Government pensions and allowances) comprises income items reported on the individual income tax return that were not allocated to one of the above categories. For example, other income can include transfer or trust income, controlled foreign company income, net foreign pension and annuity income, and foreign investment and life assurance income.
Other income (excluding Government pensions and allowances) includes the following data items on the individual income tax returns:
41 As indicated, Government pensions, benefits or allowances are excluded from the ABS income data and do not appear in other income or total income. Pension recipients can fall below the income threshold that necessitates them lodging a tax return, or they may only receive tax free pensions or allowances. Hence they will be missing from the personal income tax data set. Recent estimates from the ABS Survey of Income and Housing (which records Government pensions and allowances) suggest that this component can account for between 9 to 11% of total income.
Total income (excluding Government pensions and allowances)
42 Total income is the sum of all income derived from employee income, own unincorporated business, superannuation and annuities, investment and other income (excluding Government pensions, benefits or allowances), as defined above.
Counts of individuals
43 Individuals may receive income from a number of sources. Also, net income from a specific source may be positive or negative. For example, an individual may have positive income from employee income yet negative net income from investment. The number of individuals for each income source includes all persons with either positive or negative net income from that source.
44 Users should note that the total number of individuals in receipt of income from at least one source cannot be calculated as the sum of the individuals in each income category, since people can have more than one source of income in any given year. For example, an individual could derive income from multiple sources such as employee income, investments and their own unincorporated business and thus contribute to the regional person count in all three income categories.
45 There are several considerations that users should be mindful of when interpreting the ATO data. See paragraphs 46 and 47 below. Overall, these considerations are not seen as being so severe that they would lead to the production of misleading information. Nonetheless, readers are advised to take them into account when analysing the results.
46 Generally, the ATO considers someone to be an Australian resident for tax purposes if they have either always lived in Australia or have come to Australia to live permanently, or they have been in Australia for more than half of the financial year (unless their usual home is overseas and they don't intend to live in Australia), or they have been in Australia continuously for six months or more and for most of that time have been in the one job and living in the same place, or they are an overseas student enrolled in a course of study for more than six months duration.
47 For the purposes of providing statistical measures for the entire population, the ATO database has some limits to its coverage. As indicated previously, persons who receive an income below certain levels are not necessarily required to lodge a tax return. This can include persons who derive their income from Government pensions and allowances. Consequently, the coverage of low income earners, including people receiving government pensions and allowances, is incomplete in ATO records. In addition, some Commonwealth of Australia Government pension, benefit and allowance payments are exempt from income tax and are therefore do not need to be reported in tax returns. As such, the ATO data should be regarded as an indicative though not complete picture of all individual income earned in Australia.
Processing of tax returns
48 The data presented in this publication were compiled before the processing of all income tax returns for any given year may have been completed. Data provided to the ABS by the ATO are from returns processed up to 31 October, 16 months after the end of the financial year. Any returns lodged after this date are not included. Therefore, for 2012-13, returns processed after 31 October 2014 are not included.
49 Because of the late lodgement of tax returns in any tax reference year, the data provided in this report underestimates the total taxable income for any given financial year. It is estimated that up to 5-6 per cent of tax returns for any reference year are lodged 3-4 years later.
Changes in taxation policy
50 The ATO provides information annually in Taxation Statistics and on their website about policy changes that may affect personal income taxation statistics.
51 For full details of changes for 2012-13, please reference the ATO's guide, What's new this year? 2013. Of particular note:
52 The ABS Survey of Income and Housing (SIH) collects information on sources of income, amounts received and the characteristics of persons aged 15 years and over resident in private dwellings throughout Australia. Some data on income earned by children is also captured. Since 2003-04, SIH has been conducted biennially, with the most recent snapshots being the 2009-10, 2011-12 and the 2013-14 income years. Additional SIH estimates of annual income are produced for the survey gap years. Hence, SIH produces both estimates of current income as well as estimates of annual income in respect to the previous financial year. The latter source has been used to create the comparison of SIH household income with ATO personal income data, for 2012-13, shown in Table 1, below. For further information about the concepts, definitions, methodology and estimation procedures used in SIH, please refer to Survey of Income and Housing, User Guide (cat. no. 6553.0).
53 SIH employee income includes all payments received by individuals as a result of their current or former involvement in paid employment. In addition to the regular and recurring cash receipts captured by SIH, employee income also includes non-cash benefits, bonuses, termination payments and payments for irregular overtime. Details of the composition of employee income derived from ATO sources are provided in Explanatory Note 28 (above).
54 Table 1 below presents a selection of reasonably comparable income data items, sourced from ATO and the SIH, for 2012-13.
55 Differences in collection methodologies, data collection/extraction periods, definitions, scope/coverage etc., can all contribute to variations between EoPI and SIH income data. For instance, the inclusion of imputation (dividend franking) credits (contributing $8.9b to EoPI estimates) is one likely cause of the higher estimates observed for the EoPI investment income data. Also, as mentioned before, SIH presents data for low income households whereas the EoPI series may be missing some individuals with low incomes (for example those under the $18,200 tax free threshold) because they may not need to lodge tax returns. There are also more fundamental differences to note: for example, data differences which arise when comparing estimates from a sample survey of almost 14,200 households (SIH) with administrative records from around 12.7 million individuals (ATO).
56 Since changes were applied to the reporting superannuation income in 2007 (see paragraphs 37-38), the SIH estimate is thought to provide a more accurate, complete indication of the level of income derived from Superannuation and annuities. However, SIH estimates only include superannuation pension streams and not superannuation lump sum payments. For a fuller estimate of both superannuation pension streams and lump sum payments, Australian Prudential Regulatory Authority's Annual Superannuation Bulletin estimates $74.5b was paid out to members in both lump sum or pension stream form in the 2012-13 financial year.
57 All geographic variables are based on an earner’s home address at February 2015 as reported in the PIT Client Register. The Client Register is a constantly evolving register which is updated using information from various sources including individual tax returns. As a result, the geographic information is referenced to February 2015 when the PIT data was extracted for this publication.
58 The Australian Statistical Geography Standard (ASGS), July 2011, is used by the ABS for the collection and dissemination of geographically classified statistics, replacing the former Australian Standard Geographic Classification (ASGC). Individual tax data have been published on an ASGS basis since 2013.
59 The ASGS is an essential reference for understanding and interpreting the geographic context of statistics published by the ABS and its use enables comparability across datasets. The ASGS has been implemented by the ABS, in part, to obtain more consistency in population size across similar region types, to achieve more data stability and continuity and thereby minimise the need for annual geographic review and change.
60 Further information - including access to ASGS boundaries which underpin the data presented in this publication - can be accessed from Australian Statistical Geography Standard (ASGS): Volume 1 - Main Structure, July 2011.
61 The statistics in this release are presented according to the Australian Statistical Geography Standard (ASGS), July 2011. Under this classification, statistical areas are defined as follows:
· Local Government Areas (LGA): These areas are the spatial units which represent the geographical areas of incorporated local government councils. LGAs include sub categories such as Cities (C), NSW Local Government Areas (A), Boroughs (B), Rural Cities (RC), Towns (T), Shires (S), District Councils (DC), Municipalities (M), SA Municipal Councils (M), SA Regional Councils (RegC) and Qld Regional Councils (R). Unless stated otherwise, data are presented for LGA boundaries at 2014.
· Statistical Area Level 2 (SA2): These are general purpose, medium sized areas designed to represent communities that interact socially and economically. SA2s generally have an average population of 10,000 persons, or a population size range of 3,000-25,000 persons, tending towards the lower limit of this range in rural and remote regions. There are 2,214 SA2s Australia wide covering the whole of Australia without gaps or overlaps.
· Statistical Area Level 3 (SA3): This geography has been created as a standard for the analysis of ABS data at broader geographies through the clustering of SA2s with similar regional characteristics. Generally, SA3s have a population size range of 30,000-130,000 persons. There are 351 SA3s Australia wide.
· Statistical Area Level 4 (SA4): These are the largest sub-state regions within the main structure of the ASGS. They have been primarily designed to output labour force data, reflecting recognised major labour market regions in each jurisdiction. Population size can range from 100,000-300.000 persons, tending towards the lower limit in rural and regional areas. There are 106 SA4s Australia wide.
· Greater Capital City Statistical Area (GCCSA): These geographies, comprising 8 capital cities and their wider metropolitan surrounds, are aggregations of SA4s. When combined with 7 Rest of State/Territory regions, they cover the whole of Australia without gaps or overlaps, aggregating directly to all States and Territories. A slight exception: the entire Australian Capital Territory comprises one GCCSA, without a 'Rest of' regional component.
62 Further information regarding the ASGS regions, including the detailed classification, metadata, maps and downloadable boundary files, can be accessed from the ABS Statistical Geography Portal on the ABS website.
63 Details of income earners from regions unknown (not stated or indeterminate), or who are lodging returns from overseas, have been classified as such and included in the totals shown. Therefore, the totals shown for Australia may not necessarily be the sum of all state and territory totals.
64 The sum of sub-state geographies (GCCSA, SA4, SA3, SA2 and LGA) may not equal the state estimates due to some records having inadequate address information to be geocoded. Where a record was unable to be geocoded to an SA2, it has not been included in totals for SA2 right through to GCCSA. However, where possible, these records have been included in the state and Australia totals.
65 Confidentiality rules have been applied to the estimates to ensure there is no likely risk of individuals in the aggregate statistics presented in this publication. Therefore, the sum of sub-state estimates may also not equal state estimates due to some regions being suppressed through the confidentialising process.
67 For further information about these and other statistics, please contact the National Information and Referral Service on (Phone) 1300 135 070 or email firstname.lastname@example.org. For example, some of the data published in this catalogue can also be produced for Commonwealth Electoral Division regions, on a consultancy basis. Sub-SA2 data cannot be provided, however, because of confidentiality limitations.
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