LAW 303 Taxation Law Assignment Help

LAW 303 Taxation Law Assignment Help

LAW 303 Taxation Law Assignment Help

Introduction

The report is based on the various aspects of taxation laws of Australia. The report provides solutions specific to the income tax provisions of Australia. An income tax assesse has to follow numerous taxation provisions for the providing income tax to the government officials. Therefore, it has to go through the various laws such as ITAA 1997, ITRA 1997 and other provisions. Income tax is calculated as per the slab rate defined by the Australian officials and also, further classified by residents and non-residents criteria. For the calculation of income tax, firstly, assessable income is calculated which is further deducted by the allowable deductions provided to the taxpayers of Australia. After the above calculations, tax liability of a tax payer is calculated and other charges are also calculated such as Medicare levy and Medicare levy surcharge. Further, there is a provision of benefits of withheld of PAYG and benefits of franked credits of dividend receivers and many other benefits (Martin, 2010.). All these deductions, reduces the tax liability of a taxpayer.

LAW 303 Taxation Law Assignment Help

Question 1.  Calculation of income tax payable for the year ended 30 June, 2016

(a) An individual who is a resident of Australia with net taxable income of $ 15,000 does not need to pay any amount of tax. According to the slab rate of Australia-

slab rate of Australia, LAW 303 Taxation Law Assignment Help

 

Taxable income of the non- resident

15000

 

Income tax rate applicable

0

 

Tax payable by Non- resident

$ 15,000 * 0%

 

 

$ 0

 Therefore, the tax payable by the resident is nil. As he  falls in the category of 0%, he does not need to pay anything.        

(b) According to the slab rate of Australian taxation, an individual who is a non-resident of Australia has to pay 32.5 % of taxable income below $ 80,000.

slab rate of Australian taxation

Calculation of tax rate

 

Taxable income of the non- resident

15000

 

Income tax rate applicable

32.5%.

 

Tax payable by Non- resident

$ 15,000 * 32.5%

 

 

=$ 4,875.

Therefore, the non- resident has to pay an amount of $ 4,875 as the tax liability.

(c) According to the slab rate, corporations are taxed at the rate of 30% of the taxable income.

Calculation of tax

Taxable income of Company

$15,000

Tax rate applicable

30%

 

 

Total tax

$4,500

Therefore, the corporation has to pay $ 4,500 as a tax liability for the financial year 2015-2016.

(d) According to the slab rate, an Australian resident with a taxable income of $ 155,000 has to tax at the rate of 37% above $ 80,001 and has to pay $ 17,547 on the taxable income below $ 80,000.

slab rate an Australian resident with a taxable income , LAW 303 Taxation Law Assignment Help

Calculation is as follows-

Calculation of tax

Taxable income of the resident

$155,000

Tax on the income below $80001

$17,547

Tax on remaining income ($155,000-$80,000)

 $ 75000 *37%

 

$27,750

Total tax ($17,547+$27,750)

$45,297

Therefore, the resident has to pay $ 45,297 as the tax liability for the respective financial year.

(e) A Non- resident Australian individual whose taxable income is $ 155,000. Following represents the calculation of taxation-

Calculation of tax

Taxable income of the non-resident

$155,000

Tax on the income below $80001

$26,000

Tax on remaining income ($155,000-$80,000)

$ 75,000*37%

 

$27,750

Total tax (26000+27750)

$53,750

 Therefore, the non-resident has to pay $ 53,750 as a tax liability to the authorities.

(f) According to the slab rate, corporations are taxed at the rate of 30% of the taxable income. The taxable income of the corporation is $155,000.

Calculation of tax

Taxable income of Company

$155,000

Tax rate applicable

30%

 

 

Total tax

$46,500

Therefore, company has to pay $ 46,500 as a tax liability for the financial year 2015-2016.

(g) An Australian individual who is a resident and whose taxable income is $ 255,000 is calculated as follows-

Calculation of tax

Taxable income of the resident

$255,000

Tax on the income below $ 180,001

$54,547

Tax on remaining income ($255,000-$ 180,000)

$ 75,000*47%

 

$35,250

Total tax (54547+35250)

$89,797

Thus, the resident individual has to pay $ 89,797 as a tax liability to the authorities for the financial year 2015- 2016.

(h) An Australian individual who is a non- resident and whose taxable income is $ 255,000 is calculated as follows-

Calculation of tax

Taxable income of the non-resident

$255,000

Tax on the income below $180,001

$63,000

Tax on remaining income ($255,000-$ 180,000)

$ 75,000*47%

 

$35,250

Total tax (63000+35250)

$98,250

Thus, the non- resident has to pay $ 98,250 as  tax liability for the respective financial year.

(i) A company other than small business entity is taxed at the rate of 30%. Calculation for is as below-

Calculation of tax

Taxable income of Company

$255,000

Tax rate applicable

30%

 

 

Total tax

$76,500

 Thus, the company has to pay $ 76,500 as a tax liability for the financial year.

(j) An Australian company which is classified as a small business entity is taxed at the rate of 28.5 %.

Calculation of tax

Taxable income of Company

$100

Tax rate applicable

28.50%

 

 

Total tax

$29

Thus, the small entity business has to pay $ 29 as the tax liability.

Question 2 Calculation of Medicare levy & Medicare levy surcharge for the year ended 30 June, 2016

(a) An individual whose taxable income is equal to or below $21,335 does not need to pay medical levy. In the case, the taxable income is $ 18,000, therefore, it does not need to pay Medicare levy.

Medical levy surcharge- the MLS is exempted up to the base income limit of $ 90,000 for singles and for families the amount is $ 180,000.  In the above case, the taxable income is within the threshold limits; therefore, medical levy surcharge is not applicable.

(b) A senior individual whose taxable income is equal to or below $33,738 does not need to pay medical levy. In the case, the taxable income is $ 32,000, therefore, it does not need to pay Medicare levy.

Medical levy surcharge- Since, these are within the prescribed limits, therefore the surcharge would not be applicable.

(c) Medical levy to be paid by an individual whose taxable income is $ 45,000 is as calculated as follows-

Calculation of tax

(c)

taxable income

$45,000

 

Medical levy rate

2%

 

 

$900

Thus, the individual has to pay $ 900 as a medical levy charge for the financial year.

Medical levy surcharge- In the above case, the taxable income is $45,000 which is in the prescribed limits, therefore, medical levy surcharge will not imposed over it.

(d) An individual who is a non- resident for the tax purposes has to pay 2% of Medicare levy on taxable income. The calculations are as follows-

Calculation of tax

(d)

taxable income

$45,000

 

Medical levy rate

2%

 

 

$900

Therefore, the individual has to pay $ 900 as  a the medical levy rate to the taxation officers.

Medical levy surcharge- The taxable income is $ 45,000, which is within the base income provided by the taxation laws. Therefore, the medical levy surcharge would not be applicable.

(e) According to the Income tax assessment act 1936, company do not need to pay Medicare levy and Medicare levy surcharge. These charges are mainly for the medical facilities of individuals, therefore these are levied over individuals and not over corporations. Since, the benefits of medical facilities can only be availed by individuals and not by corporations.

(f) The individual’s taxable income is $ 110,000. The calculations of Medicare levy is as follows

Calculation of tax

(f)

taxable income

$110,000

 

Medical levy rate

2%

 

 

$2,200

The medical levy amount for the individual is $ 2,200 for the financial year 2015-2016.

Medical levy surcharge - Individuals who hold appropriate private insurance do not need to pay medical levy surcharge. Since, this charge is mainly for motivating residents of Australia for taking up private health insurance. This would ultimately, reduce the burden over the public health care sector.

(g) The individual’s taxable income is $ 110,000. The calculations of Medicare levy is as follows

Calculation of tax

(g)

taxable income

$110,000

 

Medical levy rate

2%

 

 

$2,200

The medical levy charge for the individual is $2,200 for the financial year 2015-2016.

Medical levy surcharge- Since, the person is not holding any private health insurance, Medicare levy surcharge will be calculated at 1.25%-

= $110,000* 1.25%= $ 1375.

Note- it is assumed that the individual is under the single category.

(h) The individual’s taxable income is $ 150,000. The calculations of Medicare levy is as follows

Calculation of tax

(h)

taxable income

$150,000

 

Medical levy rate

2%

 

 

$3,000

Thus, the medical levy amount to be paid by the individual is $ 3000.

Medical levy surcharge –this surcharge is calculated for the number of days it has not taken up the private health insurance.  As per the rates prescribed, 1.5 % is applicable on the taxable income.

= $ 150,000 * 1.5% = $ 2250.

Note- it is assumed that the Australian resident falls under the single category.

(i) Taxable income of victor is $ 110,000. The calculations of Medicare levy is as follows-

Calculation of tax

(i)

taxable income

$110,000

 

Medical levy rate

2%

 

 

$2,200

Taxable income of Jackie is $75,000, the calculation is -

Calculation of tax

(i)

taxable income

$75,000

 

Medical levy rate

2%

 

 

$1,500

Thus, the medical levy to be paid by the victor & Jackie are $ 2200 and $ 1500 respectively.

Medical levy surcharge - According to the slab rate for the family, Medical levy surcharge of victor & Jackie is 0 % as the income limit is lower than $ 180,000. This surcharge is calculated of the male spouse only because among the couple the higher taxable income is considered, and the taxable income of the female is lower.

(j) According to the slab rate, if an Australian couple has more than 1 child, than the minimum threshold increased by $ 1500. The minimum tier is $ 180,000 for the family category but it will increased by $4,500 ($1500 *3). Therefore, it will become $ 184,500.

Question 3

Assumptions

The year ended 30th June, 2015.
The individual has full patient private hospital cover; therefore, no Medicare levy surcharge is levied.

Taxable income Calculation

Assessable income

AUD

Salary

$32,000

Bank interest received

$150

Total Assessable income

$32,150

 

 

Allowable deductions

 

Special work clothing

$450

 

 

Total taxable income

$31,700

 

 

tax on taxable income
{$ 13,500*.19=2565}

2565

 

 

Medical levy ( $ 31,700* 2% )

634

 

 

tax paid as PAYG

-2600

 

 

Total tax payable

599

Notes

1. Accessible income means all the income receipt for a financial year which is subject to taxed. It includes various items such as profits earned through business operations, commission income, compensation received; income earned outside Australia but is a Australia residents (Woellner et. al., 2011). In the above calculations, assessable income is calculated by adding the gross salary and bank interest received. In the above calculations, salary amounts to $32,000 and bank interest received amounts to $ 150.

2. Allowable deductions are the deductions which are provided by the taxation law. These deductions are claimed by the taxpayers for reducing the tax payable amount. In the above calculations, special work clothing is provided as a deduction.

3. According to the slab rate of the financial year (2014-2015), the tax rate is applicable as follows-

Taxable income

Tax on income

$ 18,201- $37,000

0.19 for each $1 over 18,201

4. The taxable income= $ 31, 700

Income tax upto $ 18,200= nil

Taxable income over $ 18,200 ($ 31, 700- $ 18,200) = $ 13,500

Income tax rate = 19%

Tax payable (before deductions) = $ 13,500 * 19% = $ 2565.

5. Medical levy is calculated over the taxable income. The taxable income for Rob is $ 31, 700. Rate of medical levy is 2%. The calculation is as follows-

$ 31, 700 * 2% = $ 634.

6. PAYG is pay as you go. In this system, the taxpayer has to pay tax in advance. In the above calculations, the taxpayer has already paid $ 2,600 as a PAYG. In the above calculations, the assesse has claimed the deductions of PAYG.

7. The total tax payable by the assesse for the financial year (2014-2015) is $ 599. This has to be paid by the assessee to the government officials within the time limits assigned. Otherwise, it would attract liabilities.

8. All the calculations has been done in view of the Australian taxation provisions and legislatives.

Question 4

Assumptions

The year ended 30th June , 2016
The individual has full patient private hospital cover; therefore, no Medicare levy surcharge is levied.

   

Taxable income Calculation

Assessable income

 

AUD

Gross salary

 

$68,000

Australian sourced dividend income

 

 

fully franked $ 2000

$2,000

 

Gross up for franking credits (2000 *30/70)

857

2857

Unfranked dividend

 

1000

60% franked dividend (900*60)

540

 

Gross up for franking credits (540 *30/70)

230

 

Unfranked dividend

360

1130

 

 

 

Total taxable income

 

$72,987

 

 

 

Tax liability
(3572 +{(72,987-37,000)*0.325}

 

15,268

 

 

 

Medicare levy (72,987 * 2%)

 

1460

 

 

 

Franking credits (857 + 230)

 

-1087

 

 

 

tax withheld as PAYG

 

-15,100

total tax payable

 

541

Notes-

1. As per the provisions of ITAA 1997, under section 4-15 income tax has to be paid every year and income tax is calculated for the income earned in the previous year. According to the section, tax payable income is calculated in three steps. Firstly, all the assessable income are added. Secondly, all the deductions are added. Finally, the deductions are deducted from the assessable income.

2. In the above calculations, assessable income is calculated by adding gross salary, Australian sourced dividend income (including franked dividend, gross franked dividend, unranked dividend) (Woellner et. al., 2011).

3. Since, there are no deductions. Therefore, no deductions are provided in the above calculations.

4. According to the slab rate of the financial year (2015-2016), the tax rate is applicable as follows-

Taxable income

Tax on income

$ 37,001- $80,000

$ 3,572 + 32.5 for each $1 over 37,000

When calculated over taxable income which is $72,987, the tax amounts to around $ 21,377.

The taxable income= $72,987

Income tax upto $ 37,000= 3,572

Taxable income over $ 37,000 ($72,987- $ 37,000) = $ 35987

Income tax rate = 32.5%

Tax payable = $ 35987* 32.5% = $ 11,696.

Total tax = 11696 + 3,572 = $ 15,268 (before benefits).

5. Medicare levy is a charge over the taxable income. According to the taxation law, this charge is levied over individuals only for health care, and not on any corporation or separate legal entity. Basically, Medicare provides health care to Australian residents. This fund is funded by the taxpayers (Robson et. al., 2011). A nominal rate of 2% is levied over the taxable income of the individual. In the above calculations, 2% is calculated over the taxable income of $ 72, 987, which amounts to 1460.

6. Franking credits are the credits provided to the dividend holder, in lieu of, the tax already paid by the company. This is done with a view to eliminate double taxation. When a company earns net profits, it pays tax over it to the officials and then, the rest portion is dividend among the shareholders (Minney, 2010). Therefore, in order to eliminate the tax payment by the individual’s assesse, gross amount of tax credits are again added back in the assessable income of assesse and than taxed again, and then provided at the last as a deduction.

7. PAYG (pay as you go) is a system in which a regular payment as expected income tax liability is paid to the officials (Evans, C., 2012). These are actually advance payment of tax. In the above calculations, $ 15,100 is withheld as PAYG. These are further deducted from the tax payable by the assesse.

8. Finally, the total tax payable amount is calculated. In the above question, the tax payable by Rafael’s is  $ 541.

Conclusion

According to the taxation laws of Australia, the practical questions are solved. Income tax is a tax levied by the Australian authorities as a measure of source of income and all the tax payers who has a source of income and lies within the income tax limits, pays income tax accordingly. In the report, the first question relates to the assessing of income tax on the basis of resident, non-resident and company. Further, the second question relates to the calculation of medical levy and medical levy surcharge. These surcharges are levied only on individuals and not on corporations. In the third question, there is a calculation of income tax payable by an individual. This practical involves calculation of assessable income and then provision of deductions and further calculation of Medicare levy & Medicare levy surcharge. In the final question, also, there is a calculation of income tax liability, with the aid of income tax provisions and legislatives. The overall project, has provided an insight into the income tax provisions and income tax assessment of Australia.

References

Ato.gov.in, 2016, “Australian government”, Australian Taxation office, available at https://www.ato.gov.au/rates/individual-income-tax-rates/ accessed on 27.11.2017

Ato.gov.in, 2016, “Australian government”, Australian Taxation office, available at https://www.ato.gov.au/Individuals/Medicare-levy/ accessed on 27.11.2017

Ato.gov.in, 2016, “Australian government”, Australian Taxation office, available at https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-reduction-for-low-income-earners/ accessed on 27.11.2017

Ato.gov.in, 2016, “Australian government”, Australian Taxation office, available at https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-exemption/category-1--medical-exemption-from-medicare-levy/ accessed on 27.11.2017

Ato.gov.in, 2016, “Australian government”, Australian Taxation office, available at https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-surcharge/ accessed on 27.11.2017

Ato.gov.in, 2016, “Australian government”, Australian Taxation office, available at https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-surcharge/income-thresholds-and-rates-for-the-medicare-levy-surcharge/ accessed on 27.11.2017.

Woellner et. al., 2011. Australian Taxation Law Select: legislation and commentary. CCH Australia.

Evans, 2012, “Tax Governance Issues: Managing System Complexity. Economic Papers: A journal of applied economics and policy, 31(1), pp.30-35.

Woellner et. al., 2011, “Australian Taxation Law Select: legislation and commentary”. CCH Australia.

Minney, 2010, “The valuation of franking credits to investors”, JASSA, (2), p.29.

Robson, A., Ergas, H. and Paolucci, F., 2011, “The analytics of the Australian private health insurance rebate and the Medicare levy surcharge”. Agenda: A Journal of Policy Analysis and Reform, pp.27-47.

Martin, 2010, “Native Title Payments and Their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach?”.