What is the Marginal Tax Calculation?

The Marginal Tax Calculation is used to calculate the taxation payable on lump sum payments including unused annual leave, leave loading, unused time off instead of overtime, unused long service leave and lump sum pro rata payment of salary inclusive of annual leave for preschool teachers (but not including ordinary hours).

  1. Divide total gross lump sum payment by 52 (if paid weekly) or 26 (if paid fortnightly).
  2. Add this amount to the normal gross earnings of the employee for a pay period to create a ‘notional’ gross income.
  3. Calculate tax instalment on the new ‘notional’ gross income using the usual tax tables for that employee.
  4. Take the difference between the tax on the employee’s normal gross earnings and the tax on the new ‘notional’ gross income and multiply this amount by 52 or 26 (as per step 1).