The effective tax rate is the amount of income tax an individual or firm pays divided by the individual or firm's total taxable income. This ratio is usually expressed as a percentage. The examples and perspective in this article or section may not represent a worldwide view. ... Taxable income is the portion of income that is subject to taxation. ... In number and more generally in algebra, a ratio is the linear relationship between two quantities of the same unit. ...

The Offical Australian Effective Tax Rate Definition

In Australia, the effective rate of tax represents the average tax when all other government tax offsets or payments are includes; that is it also includes non-taxable incomes effects. It is presented as a percentage. Hence, if certain groups have high degrees of tax offsets compared to other groups - for example agricultural producers as opposed to service producers - their effective tax rate will be lower, even where their offical average tax rates and marginal tax rates will be equal. (Reference: "International Comparison of Australia's Tax Rates: 3. A statistical overview" from The [Australian Commonwealth Government] Treasury website @ http://comparativetaxation.treasury.gov.au/content/report/html/05_Chapter_3.asp, June 7, 2006)

In recent years, the current government has come under fire for providing so-called "middle-class" welfare payments" such as the baby bonus that are non-means-tested allocations - that is, they are provide to all Australia parents who have children, regardless of income. This payment therefore lowers the effective tax rate to families with children compared to families without, because, as this is a goverment payment, the benefit is not taxed, again even where the average tax rates are equal. (Reference: "Howard deals a trump with family tax benefit" article in The Australian, Apirl 28, 2006. Accessed through http://www.theaustralian.news.com.au/story/0,20867,18950036-17301,00.html, June 7, 2006.)

The effective rate of tax is often talked in terms of the effective marginal rate of tax - namely the amount of effective tax an Australian pays as a percentage of their last earnt dollar. In this case, the effective marginal rate of tax is often higher than the nominal marginal rate of tax for lower income earners, because as their income increases, they not only gain increases in taxable income (Australians pay no tax on thier first $6,000 AUD earnt), and they also lose means-tested welfare benefits. Hence, effectively, they are returning more of their total income to the government than their offical tax rates suggest. Similarly, but more controversially, the highest income earners will often pay a lower effective marginal tax rate than marginal tax rate because they have greater opportunities to seek out tax offsets such as salary sacrific or capitial gain tax benefits than lower income earners. (Reference: "International Comparison of Australia's Tax Rates: 4. Wage and Salary Taxation" from The [Australian Commonwealth Government] Treasury website @ http://comparativetaxation.treasury.gov.au/content/report/html/06_Chapter_4.asp, June 7, 2006)