# TLAW 303 Taxation Law Proof Reading Service

## Block 2

### Question 1

Calculation of income tax payable with not taking medical levy into consideration for the financial year 2015-16

A. Australian resident in individual category earning taxable income of \$ 15,000

For an individual who is a resident in Australia following tax slab range will be applicable for calculating the tax amount for the year 2015/16

 Range (amount in AUD \$) Taxable amount 1 0 – 18200 Nil 2 18201 – 37000 19 % of income earned over \$ 18200 3 37001 – 80000 \$ 3572 + 32.5 % of income earned over \$ 37000 4 80001 – 180000 \$ 17547 + 37 % of income earned over \$ 80000 5 180001 and above \$ 54232 + 45 % of income earned over \$ 180000

(Ato, 2016)(6)

From the above table it is clearly visualised that above resident falls in category 1 ranging from 0 to \$ 18,200 and amount of tax charged will be \$ 0. There will be no medical levy as exempted by the above problem. Income of resident comes under the basic exemption limit so there will not be any tax charged over the income earned by individuals.

B. Australian non- resident in individual category earning taxable income of \$ 15,000

For an individual who is a non -resident in Australia following tax slab range will be applicable for calculating the tax amount for the year 2015/16

 Range (amount in AUD \$) Taxable amount 1 0 – 80,000 32.5 % for every 1 \$ earned 2 80001 – 180000 \$ 26000 + 37 % of income earned over \$ 80000 3 180001 and above \$ 63,000 + 45 % of income earned over \$ 180000

(Ato, 2016)(3)

From the above table it is clearly visualised that above resident falls in category 1 ranging from 0 to \$ 80,000 and amount of tax charged will be (32.5 % of 15000) equals to \$ 4875.00. Medical levy is not taken into consideration in case of non residents.

C. Australian company with taxable income of \$ 15000

As per the legal tax compliance applicable on the acompany’s ATO has recommended tax rate of 28.5 % over the income earned by the company. Companies similarly to non residents are not benefited with the basic exemption limits. The following slab rate will be applicable on income earned by the companies.

 0 – 2,000,000 28.5 % of income earned

Income earned by the company amounted to \$ 15,000 which will be taxed as follows

= 15,000 * 0.285

= \$ 4275

D. Australian resident in individual category earning taxable income of \$ 155,000

For an individual who is a resident in Australia following tax slab range will be applicable for calculating the tax amount for the year 2015/16

 80001 – 180000 \$ 17547 + 37 % of income earned over \$ 80000

Income earned by individual amounted to \$ 155,000 will falls in category ranging from 80,001 to 180,000. The tax calculated on above amount will be as follows

= \$ 17,547 + \$27,750

= \$ 45297

There will be no medical levy as given in the facts of the case of above problem. It is further taken into consideration that there is no further deductions allowed to assesse in the above case. Apart from above income there is no other source of income for resident individuals from domestic and sources from abroad.

E. Australian non- resident in individual category earning taxable income of \$ 155,000

For an individual who is a non- resident in Australia following tax slab range will be applicable for calculating the tax amount for the year 2015/16

 80001 – 180000 \$ 26000 + 37 % of income earned over \$ 80000

Income earned by individual amounted to \$ 155,000 will falls in category ranging from 80,001 to 180,000. The tax calculated on above amount will be as follows

= \$ 26,000 + \$27,750

= \$ 53750

It is to be noted that there will be no medical levy applicable on the taxability of non – resident.

F. Australian resident in individual category earning taxable income of \$ 255,000

For an individual who is a resident in Australia following tax slab range will be applicable for calculating the tax amount for the year 2015/16 for the above mentioned income

 180001 and above \$ 54232 + 45 % of income earned over \$ 180000

Income earned by individual amounted to \$ 155,000 will falls in category ranging from 180,001 and above. The tax calculated on above amount will be as follows

= \$ 54,232 + \$33,750

= \$ 87982

G. Australian non- resident in individual category earning taxable income of \$ 255,000

An individual which is non resident by nature according to taxation guidelines prescribed byAustralian taxationoffice below mention tax slab will be applicable for the above mentioned case. Calculation of tax amount will be done for the financial year 2015/16 as referred in the present case study.

 180001 and above \$ 63,000 + 45 % of income earned over \$ 180000

In the present scenario income earned by the individual amounted to \$ 155,000 will fall in the above mention category for calculation of taxation. The amount of tax will be calculated as follows

= \$ 63000 + \$ 33,750

= \$ 96,750

H. Australian company with taxable income of \$ 255000

As discussed in the above case study no. (c), the relevant rate of taxation will be same as in the particular mentioned case. The companies earning income below \$ 2 million are referred in ATO as small companies. Companies are not entitles to benefits of basic exemption limits. The below mentioned slab rate will be applicable in the present scenario

 0 – 2,000,000 28.5 % of income earned

In the present case study income earned by the company was \$ 255000 during the previous year 2015-16. Tax amount to be payable by the company will be calculated as follows

= \$ 255,000 * 0.285

= \$ 72,675

I. Australian company in “small business entity” category with taxable income of \$ 100

The companies earning income below \$ 2 million are referred in ATO as small companies. As in the present case company has earned the income of \$ 100 only it comes under the category of small business entity.

As there is no threshold limit for basic exemption applicable on the companies. There will be tax levied on the company even on a small amount of \$ 100. Amount of tax to be payable by the company will be calculated as follows

= \$ 100 * 0.285

= \$ 28.5

### Question 2

Calculation of Medicare levy and Medicare levy surcharge for the previous year 2015/16

Medicare levy - Medicarelevy is charged at the rate of 2 % of their taxable income. Charging of levy totally depend upon the income level of assesse. There is a particular threshold limit which decides the amount of levy.

Medicare levy surcharge –In addition to the above level individual is charged with additional surcharge if an individual don’t avail any private hospital medical insurance facility. Further income criteria sustains here also as there is particular threshold limit prescribed in law which decides the level of income above which surcharge can be charged, subject to prescribed conditions.

A. Medicare levy and surcharge calculation for an individual resident by nature according to tax law of Australia with total taxable income of \$ 18,000

Taxable income assessed for the year = \$ 18000

Assumptions-

It has been assumed that assesse has no dependants, therefore there will be no tax liability raised while calculating the levy and surcharge amount for Medicare.

Assesse is not eligible for seniors and pensioners tax offset

Assesse don’t have any spouse

Individual avail the private hospital medical insurance facility for complete 365 days

From the above assumptions it has been concluded that assesse is eligible for Medicare levy exemption.

Findings-

Assesse don’t have to pay the Medicare levy and surcharge as the taxable income of the individual does not exceeds the prescribed threshold limit.

B. Medicare levy and surcharge calculation for an individual resident by nature eligible for seniors tax offset with total taxable income of \$ 32,000

Taxable income assessed for the year = \$ 32000

Assesse is not eligible for seniors and pensioners tax offset

Assumptions-

1. It has been assumed that assesse has no dependants, therefore there will be no tax liability raised while calculating the levy and surcharge amount for Medicare.

2. Assesse don’t have any spouse

3. Individual avail the private hospital medical insurance facility for complete 365 days

From the above assumptions it has been concluded that assesse is eligible for Medicare levy exemption.

Findings-

Assesse don’t have to pay the Medicare levy and surcharge as the taxable income of the individual does not exceeds the prescribed threshold limit.

C. Medicare levy and surcharge calculation for an individual resident by nature aged 45 with total taxable income of \$ 45,000

Taxable income earned by the individual - \$ 45000

Assumptions are similar as mentioned in case (a). Similarly assesse is eligible for medical levy and surcharge exemption up to certain extent

Findings-

The Medicare levy to be charged on assesse was amounted to \$ 2.46 after seeking into fact various calculations a prescribed ATO law.

D. Medicare levy and surcharge calculation for an individual non - resident by nature according to tax law of Australia with total taxable income of \$ 18,000

Taxable income earned by the individual - \$ 18000

Note

1. Medicare levy is not to be charged on income earned by non residents subject to fact that assesse is not staying in the country with which Australian government has reciprocal agreement.

2. Individual avail the private hospital medical insurance facility for complete 365 days

Findings-

The Medicare levy is not to charged on assesse a prescribed in ATO law.

E. Australian company with taxable income of \$ 2,500,000

Both Medicare levy and Medicare surcharge are taxed on taxable income of individuals. Income earned by companies and other statutory bodies are not taxed with the above effect.

Findings-

The Medicare levy & surcharge is not to charged on assesse a prescribed in ATO law.

F. Medicare levy and surcharge calculation for an individual resident by nature aged 45 with total taxable income of \$ 110,000 (have private health insurance)

Note

1. Individual avail the private hospital medical insurance facility for complete 365 days, therefore no surcharge to be levied.
2. Assesse is resident by nature

Assumptions-

1. It has been assumed that assesse has no dependants,

2. Assesse don’t have any spouse

Findings

Assesse falls in category ranging from \$ 90001 to \$ 210,000 medical levy to be charged

= \$ 110,000 * 0.02

= \$ 2200

G. Medicare levy and surcharge calculation for an individual resident by nature aged 45 with total taxable income of \$ 110,000 (don’t have private health insurance)

Note

1. Individual don’t avail the private hospital medical insurance facility for complete 365 days, therefore surcharge is to be levied.

2. Assesse is resident by nature

Threshold limit for medical levy surcharge

 90,001 – 210,000 1.25 % of income earned

Assumptions-

Similar assumptions as mentioned in above case

Findings

Assesse falls in category ranging from \$ 90001 to \$ 210,000 medical levy to be charged

= \$ 110,000 * 0.02

= \$ 2200

Medical levy surcharge

= \$ 110,000 * 0.0125

= \$ 1375

H. Medicare levy and surcharge calculation for an individual resident by nature with total taxable income of \$ 150,000 (have private health insurance for 90 days)

Note

1. Individual avail the private hospital medical insurance facility for complete 90 days only, therefore proportionate surcharge is to be levied.

2. Assesse is resident by nature

Threshold limit for medical levy surcharge

 90,001 – 210,000 1.25 % of income earned

Assumptions-

Similar assumptions as mentioned in above case

Findings

Assesse falls in category ranging from \$ 90001 to \$ 210,000 medical levy to be charged

= \$ 110,000 * 0.02

= \$ 2200

Medical levy surcharge (proportionate)

= (\$ 110,000 * 0.0125)* {(365 – 90) / 365}

= \$ 1695.20

I. Calculation of levy and surcharge for Australian tax residents, Assesse taxable income was \$ 110,000 and his spouse taxable income was \$ 75,000. No children and no health insurance.

Clubbing of annual income for taxable purposes = (\$ 110,000 + \$ 75,000) = \$ 185,000

Note

1. No children and no private health insurance availed by either of assesse

2. Assesses are resident in nature

Findings

Assesse falls in category ranging from \$ 90001 to \$ 210,000 medical levy to be charged

= \$ 185,000 * 0.02

= \$ 3700

Medical levy surcharge

= \$ 175,000 * 0.0125

= \$ 2187

J. Minimum levy surcharge threshold for a family with 4 children and no health insurance

For medical levy surcharge purpose the following will be added to the category of dependents while calculating the threshold limit of surcharge

1. Spouse of the assesse, (whether earning or not)

2. Children of assesse, if full time students then up to age of 24 years otherwise 21 years.( Ato, 2016)(2)

There are four surcharge rates prescribed in case of individual with family which is tabulated below

 Base tier Tier 1 Tier 2 Tier 3 <= \$ 180,000 \$ 180,001 to \$ 210,000 \$ 210,001to \$ 280,000 >= \$ 280,001 0 % 1% 1.25 % 1.5 %

(Ato, 2016(5))

Note-

Medicare levy threshold will be increased by \$ 1500 after the birth of first child. As in the present scenario assesse has 4 dependent children. Therefore the threshold limit has been increased by \$ 4500.

### Question 3

Facts of the problem

1. Rob is an Australian resident individual

2. Annual salary received by Rob for the financial year 2014 – 2015 was \$ 32,000

3. Annual bank interest received by assesse was \$ 150

4. Deductions allowed to assesse for the relevant financial year was \$ 450

5. Tax deducted at source by the employer of Rob \$ 2600

### Relevant law applicable to the above problem

As Rob is a resident individual of Australia and income is earned under the head income from salaries following slab rate will be applied for the previous year 2014/15. As the annual income of Rob is below \$ 37000 he falls under slab rate with range of (\$ 18,201 - \$ 37,000) and the applicable tax rate will be 19 cents per 1 \$ over and above \$ 18200. Income needed to be declared by Rob in his gross total income will be his income earned from employment source and other interest income from these investments net of all deductions.

### Solution to the problem

 Computation of taxable income and tax payable Residential status Resident Net total income (\$ 32,000 + \$ 150 - \$ 450) \$ 31,700 Tax calculations Particulars Amount Tax calculated on net total income ( \$ 31700 - \$ 18200) * 0.19 \$ 2565 Less Low income tax effect  (Ato, 2016) (7) (\$ 445) Tax payable \$ 2120 Add + Medicare levy \$ 634 Total tax to be paid by ROB \$ 2754 Less PAYG deducted at source by employer (\$ 2600) Net tax to be paid by ROB \$ 154

### Relevant assumptions & findings related to the above case

1. Rob is not minor as on 30th June 2015 that is below the age of 18 years

2. Rob is an Australian resident for the complete year

3. Combined annual total income of Rob and his spouse is less than \$ 150000

4. Medicare levy for Rob for the year was \$ 634

5. Rob is entitled to tax offset of \$ 445 due to low income effect

### Facts of the problem

1. Rafael is an Australian resident individual

2. Annual salary received by Rafael for the financial year 2014 – 2015 was \$ 68,000

3. Fully franked dividend received by Rafael was \$ 2000

4. Unfranked dividend received by Rafael was \$ 1000

5. Semi franked dividend (60%) received by Rafael was \$ 900

6. No deductions allowed during the financial year

7. Tax deducted at source by the employer of Rob \$ 15,100

Relevant law applicable to the above problem

In the above case applicable tax slab rate for Rafael range for the previous financial year 2014/15 is tabulated below

 Range (amount in AUD \$) Taxable amount 1 0 – 18200 Nil 2 18201 – 37000 19 % of income earned over \$ 18200 3 37001 – 80000 \$ 3572 + 32.5 % of income earned over \$ 37000

(Ato, 2016)(4)

In addition to above on the income earned from dividend source by Rafael during the year will be taxed according to their nature and level of franking. Formulae for calculating franking credits given by ATO is

Franking credits earned= {amount earned by dividend income / (1 – tax rate applicable on companies) — amount earned by dividend income ( Heaney, 2009)

Rest all law applicable on Rafael will be same as of previous case problem.

### Solution to the problem

Calculation of franking credit earned by Rafael

 No. Type of dividend Franking credit 1 100 % franked dividend amounted \$ 2000 857.14 2 60 % franked dividend amounted \$ 600 231.42 3 Unfranked dividend amounted \$ 1000 No credit

Calculation of tax on dividend income

 No. Dividend amount Franking credit (a) Total amount (b) Applicable tax rate (c) Tax amount(d) = (b)*(c) Net tax to be paid on dividend income =(d) –(a) 1 \$ 2000 857.14 \$ 2857.14 32.5 % 928.57 71.43 2 \$ 600 231.42 \$ 831.42 32.5 % 270.21 38.79 3 \$ 1000 No credit \$ 1000 32.5 % 325.00 325.00 Total tax calculated on dividend income 435.22
 Computation of taxable income and tax payable Residential status Resident Net total income except dividend income \$ 68,000 Tax calculations Particulars Amount Tax calculated on net total income= \$ 3572 + ( \$ 68,000 - \$ 37000) * 0.325 \$ 13,647 Add + Total tax calculated on dividend income 435.22 Tax payable \$ 14,082.22 Add + Medicare levy \$ 1410 Total tax to be paid by Rafael \$ 15492.22 Less PAYG deducted at source by employer Ato, (2015)(1) (\$ 15,100) Net tax to be paid by Rafael \$ 392

### Relevant assumptions & findings related to the above case

1. Rafael is not minor as on 30th June 2015 that is below the age of 18 years

2. Rafael is an Australian resident for the complete year

3. Combined annual total income of Rafael and his spouse is less than \$ 150000

4. Rafael is not entitled to any tax offset

5. Medicare levy for Rafael for the year was \$ 1410

### References

Ato, 2015, “PAYG instalments”. Available at -https://www.ato.gov.au/General/payg-instalments/

Ato, 2016, “Family and dependants for Medicare levy surcharge purposes” available at -https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-surcharge/family-and-dependants-for-medicare-levy-surcharge-purposes/

Ato, 2016, “Foreign residents” available at -https://www.ato.gov.au/Rates/Individual-income-tax-rates/?page=1#Foreign_residents

Ato, 2016, “How dividends are taxed” available at -https://www.ato.gov.au/Forms/You-and-your-shares-2013-14/?page=5

Ato, 2016, “Income thresholds and rates for the Medicare levy surcharge” available at -https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-surcharge/income-thresholds-and-rates-for-the-medicare-levy-surcharge

Ato, 2016, “Individual income tax rates” available at -https://www.ato.gov.au/Rates/Individual-income-tax-rates

Ato, 2016, “Low income tax offset calculator” available at -https://www.ato.gov.au/Calculators-and-tools/Low-income-tax-offset
Heaney, R., 2009. Dividend imputation in Australia: The value of franking credit balances. School of Economics, Finance and Marketing, RMIT University. available at -http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.175.6869&rep=rep1&type=pdf