FNSACC502 Prepare Tax Documentation for Individuals

FNSACC502 Prepare Tax Documentation for Individuals

FNSACC502 Prepare Tax Documentation for Individuals

Assessment Task 1:

Task 1

Assessment of taxable income of John for current financial year

Assessment of taxable income an individual include gross income of the individual received after adjusting all the exemptions and deductions applicable as per income tax assessment act 1997  during the financial year. As per the provisions of section 6.5 of income tax law assessment act 1197, salary received by John amounted to $ 19760 or $380 per week received through part-time employment in the restaurant has considered for the purpose of income tax calculations.

John has also received an amount of $3400 from afamily trust, as a beneficiary, he is eligible for payment of tax on the amount received from the trust.  John has also won Lotto prize worth $12000 which does not attract any tax liability as per the income tax assessment act 1997.

The Taxable income of John are as under:

Particulars

Amount (in $)

Income from Part-time employment

19760

Fund received from trust

3400

Total Income

23160

HELP repayment amount at the current income thresholds

Higher education loan programme (HELP) provided by Australian government which provides financial assistance to individuals in education. Individuals who are eligible for HELP getting arebate in the expenses related to studies. HELP scheme is known for providing acontingent loan to students. The current rate of repayment in HELP scheme are as follows:

The taxable income of John is $23160 which is below the threshold limit of repayment so he is not liable to repay the amount of loan in acurrent financial year.

Tax deductions that John may be entitled to

Deductions are those expenses which reduce the income eligible for tax under applicable tax provisions. Individual who is going to file income tax return under income tax act is eligible for deduction under specified provisions of acts. The individual is eligible for deduction only if he fulfilsthe specified criteria. John is eligible for the following deductions:

Clothing, Laundry and dry cleaning expenses:

John is entitled to adeduction of the expenses arises for clothing, Laundry and dry cleaning. In order to get adeduction for clothing, Laundry and dry cleaning proper records like bills are required to be maintained. Sometimes employer also provides anallowance for the same purpose the amount should be shown on the return of the individuals.

Vehicle and travel expenses:

Expenses in relation to vehicle and travel expenses are also eligible for deduction. The main requirement for such deduction is that the vehicle and travel expenses must be incurred in thenormal course of business. If John wants to avail deduction then he has to keep aproperrecord of the expenditure.

Self-education expenses:

John can also get adeduction for education expenses. John is entitled to adeduction of education expenses on the basis of HELP payments.  The main requirements of getting adeduction on education expenses are that the income of John must be lie in the limits prescribed for repayment income list.

Apart from these expenses, John may get adeduction on other expenses arises due to atransaction made during the financial year from his income.

Task 2

Total Assessable income of Sarah for the financial year

The total income of Sarah is assessable under income tax assessment act 1997. The gross income of Sarah includes wage earned by her on the basis of fortnightly and income earned by her in partnership business during the current financial year. Sarah has to pay income tax on the amount of profit toearn in the partnership business. Profit from partnership business is taxable in the hand of partners as individual’s income tax liability. The assessment of  income of Sarah are as follows:

Particulars

Amount (in $)

Income received from employment as Admin Assistant

168*8=13440

Profit share from partnership business

66,660*50% = 33,330

Total assessable income of Sarah

46770

Tax deductions for home based business

Sarah was involved in the business in the partnership with her sister. She is entitled to 50% of theprofit of the partnership firm. The income earned from partnership business is not taxable in the hand of partnership firm but it is taxable in the hand of partners. As per the applicable taxation provision, there is no deduction allowed for home-based partnership business. The deduction is available to Sarah on her personal income and amount of profit received from the total profit of partnership business.

Tax offset that may apply in Sarah Situation

Sarah is coming under the low-income tax earners category so she is eligible to claim alow-income tax offset. On thefiling of income tax return,Sarah can prove that she is coming under the category of low-income earner and eligible to get tax offset. Sarah can get tax offset of $445 only if her income crosses the limit of $37000 with 1.5 cents for each dollar above 37000. The tax offset for Sarah will be $298.45.

Income Tax Liability for Sarah

The taxable income of Sarah is $46770. On which she is liable to pay tax amounted to $6747.25. The tax liability has calculated with the help of tax calculator available on the Australian website. After calculating Medicare levy and allowing tax offset the taxliability of Sarah will be as follows:

=$6747.25+($6747.25*2%) - $298.45

=$6449.82

Task 3

The taxable income of Stella includes income from dividend, superannuation fund and bookkeeping. The taxable income of Stella has calculated as per the applicable provision of income tax amendment act, 1997.

A. Taxability of Dividend income:

Gross value of dividend =  ($8000*100/70) = $11428.57

The amount above $8000 is considered as franking credit which has paid by the company on behalf of Stella.

Amount of Franking credit = $11425.57-$8000 = $3428.57

While calculating gross value of dividend 30% tax rate has assumed.

B. Taxability of Superannuation Income:

Superannuation income has considered as ordinary income, so the treatment of  it is made like ordinary assessable income.

Superannuation Income = $36000

An amount of $1000 on superannuation income has paid by Stella in advance.

C. Taxability of Bookkeeping Income:

Income from bookkeeping is personal service income which is a part of Stella’s taxable income.so the Book keeping income amounted to $8000 is included total income for calculating tax liability.

Stella is also eligible for the deduction if her income crosses tax-free limits.

Particulars

Amount (in $)

Assessable Income

$11428.57+$36000+$8000 = $55428.57

Tax on assessable income

$9561

Medicare levy

$9561*2% =$1109

Total tax liability

$9561+$1109- Franking credit+ PAYG Tax withheld

=$6241.00

Working Note:

  1. No tax upto income $18000
  2. 19% for  $18000-$27000
  3. 32.5% for 37001-87000

Assessment task 2:

ATO lodgement process and deadlines:

ATO is the major Australian agency which manages all the taxation system of Australia. The system administers number of method for returns filing and for payment of taxation. A tax return could be filed through the ATO websites, tax agents are also presents who aid in filing tax return online and offline and also an individual can file the tax return manually. 

In accordance with the Australian authority, the deadline date for lodgement purpose is 31st October. Every person must file the return for a financial year before 31st October (Australian Government, 2017).

Options for lodgement purpose:

Sarah, the individual, has earned income through providing personal income and therefore, Sarah need to file the return with ATO. She can choose any method according to her suitability such as fill up the prescribed form available with the ATO platform, file up “My tax” form provided by the ATO or file up return through the aid of registered tax return (Australian Government, 2017).

Process of Self-assessment:

Self-assessment is the key concept of Australian taxation system. In self-assessment process, all the information are filled up by the individuals themselves and the information is understood as true and fair information. The individual has to itself assess the taxation information and calculate tax to be paid for a relevant financial year. An individual has to administer itself the information to be filed up and also provide proper provision of PAYG statements and activity statements. Lastly, it is administer that all the information shown in the return are in accordance with the Australian taxation laws and also the individual has taken appropriate deductions.

Authority of ATO: for auditing and reviewing the tax payer’s

Since, the information are filed up with the judgement of the taxpayer, there are high possibility of error or omission. ATO has enough authority to review and audit the tax returns furnished by individuals and corporations. It is done to ensure that there are no possible errors in furnishing details related with income, expenditure, and in calculation of taxliability. Firstly there is need to review the assessment forms and in case of any type of doubts, errors or omission, further audit is also done which is known as “Tax audit”. In further auditing purposes, errors are cross examined and in case default proper tax penalties are imposed. On other hand, if there are no doubts, review will be regarded as complete assessment and the tax liability shown in the tax return will be final tax imposition (Australian Government, 2017).

Things to be considered for future tax preparation:

While making tax consideration, there are number of factors which have to be looked for eliminating any form of errors or omission in filing of tax returns and making payments of taxation:

1. Tools and applications: Australian government provides number of tools over the ATO portal for easing the taxation calculations. The portal provides all the recent information about tax assessment so that tax liabilities could be filed. ATO has authorised number of applications over internet and for mobile for making tax filing easy.

2. Collecting the taxation documents:there are number of supporting statements with the tax filing return.The documents like PAYG statements and activity statements assist the taxation filing. These documents must be provided with correctly and accurately so that the annul return can be cross examined and the possibility of any errors are also minimized (Australian Government, 2017).

3. Deductions: Australian government provides number of deductions which are used for minimizing tax liability. The ATO portal provides information about deductions and therefore, the deductions must be accurately taken. There must be thorough information about deductions availed for reducing the tax liability of an individual.

4. Adherence to recent changes: taxation rules and regulations constantly changes with time. These are changed for improved and better regulation of the taxation system. Therefore, it is the key responsibility of the tax payer to adhere to all the recent changes and also apply those changes while filing tax returns and paying tax liability.

5. Assistance of tax agents: Tax agents are professional expertise for assisting in filing tax returns and making tax obligations. Every individual must take assistance of tax agents for proper filing up of tax returns and the chances of errors or omissions will also get eliminated. Tax agents are easily available and also have nominal charges for filing the tax returns (Australian Government, 2017).

Calculation of Sarah taxable income:

Particulars

Amount ($)

Taxable Income (Salary)

85500

Bank Interest (income from other source)

1200

Unfranked Dividend (income from other source)

7500

Gross Income

94200

Less : Deductions

 

Professional Association Membership

480

PR and Client Relationship

900

Phones used for business purposes

650

Self-Education Expenses

2550

Home office Expenses

2800

Taxable Income

86820

In Salary, PAYG Withheld $18, 250

Calculation of tax:

The tax rates applicable over Sarah would be those which are applicable on individual. Apart from tax rates, there will also be applicability of Medicare levy of 2% (Australian Government, 2017).

Tax sheet:

The taxable income of Sarah is $ 86,820 which falls in the $ 37,001-$ 87,000. In this segment, tax payable would be $ 3,572 plus 32.5c for each $ 1 over $ 37,000.

= $ 86,820-$37,000= $ 49,820

=32.5* $49,820 = $ 16,191

Tax liability= $ 3,572 + $ 16,191

=$ 19,763

Medicare levy (2% of $ 86,820) = $ 1,736

Total tax payable= $ 19,763 + $ 1,736

= $ 21,500 (rounded off)

Deduction of PAYG = = $ 21,500- $18, 250

= $ 3,250.

Code of conduct for “Tax agents”:

The tax agent services act, 2009, describes the norms and code of conduct to be followed by the tax agents while providing assistance to clients:

Privacy and confidentiality: A tax agent gets to know large financial information about other people. Therefore, tax agents need to maintain the confidentiality about other financial transactions and must not engaged into other violating privacy clause. 

Competence: A tax agents must be capable for filling up and making all the required information for filing an appropriate tax return. The must possess appropriate academic qualifications for doing the necessary job. 

Integrity: Integrity is also required. A tax agent being a confidant of other must be showing enough honesty and integrity towards the required person. 

Professional expertise: A tax agent must have enough professional expertise for completing taxation law requirement and also must also be update with the recent changes  (Australian Government, 2017)

References:

1. AIA (2017). Franking Credits [Online] AIA. Available at: http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/ [Accessed: 22 November 2017]

2. Australian Government (2017). Individual income tax rates [Online] Australian Government. Available at: https://www.ato.gov.au/Rates/Individual-income-tax-rates/[Accessed: 22 November 2017]

3. Australian Government (2017). Individual tax return instructions 2016. [Online] Australian Government. Available at: https://www.ato.gov.au/Forms/Individual-tax-return-instructions-2016-(PDF)/. [Accessed: 23 November 2017]

4. Australian Government (2017). Individuals. [Online] Australian Government. Available at: https://www.ato.gov.au/Individuals/. [Accessed: 23 November 2017]

5. Australian Government (2017). Medicare Levy Calculator [Online] Australian Government. Available at: https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=MedicareLevy&anchor=MedicareLevy/questions&anchor=MedicareLevy/questions#MedicareLevy/report [Accessed: 22 November 2017].

5. Australian Government (2017). Simple Tax Calculator [Online] Australian Government. Available at: https://www.ato.gov.au/calculators-and-tools/simple-tax-calculator/ [Accessed: 22 November 2017]

6. Australian Government (2017). Tax Professionals newsroom. [Online] Australian Government. Available at: https://www.ato.gov.au/Tax-professionals/Newsroom/. [Accessed: 23 November 2017]

7. Australian Government (2017). Tax return for individuals 2012-13. [Online] Australian Government. Available at: https://www.ato.gov.au/Forms/Tax-return-for-individuals-2012-13/. [Accessed: 23 November 2017]

8. Australian Government (2017). What to include in your assessable income [Online] Australian Government. Available at: https://www.ato.gov.au/business/income-and-deductions-for-business/assessable-income/what-to-include-in-your-assessable-income/ [Accessed: 22 November 2017]