The implications for lifetime income taxes of differentials in tax rates in the tax system depending on how or when the income is received

The Australian tax system is often seen as taxing income in a way that means as income increases the proportion of that income taken by the government as tax also increases – that is a progressive personal tax system.  The personal income tax rates schedule reflects this.  This is often argued to be “fair” as it reflects an individually ability to pay or contribute to society.  There are a number of aspects of the current system that might see a different outcome in practise.

  • not all income is treated the same – tax rates differ depending on the source of the income
  • Tax liabilities in Australia are determined on the basis of annual income and not income across a person’s lifetime

To what extent does the pattern of income for individuals in terms of both source and timing influence the lifetime tax liabilities?