LAWS20060 Taxation Law of Australia Individual Assignment Answer
LAWS20060 – TAXATION LAW OF AUSTRALIA
Answer to question no- 1
- Taxation Ruling TR 2018/4 contains the list of effective lives of depreciating assets under section 40-100 of the Income Tax Assessment Act 1997 (ITAA 1997). The list contains official new effective live which has been determined and is applicable from 1 July, 2018 onwards.
- Division 13 of the Income Tax Assessment Act 1997 states the details about the available tax offsets.
- For residents, if the income is $180,001 and over, a tax of $54,097 plus 45% of amounts over $180,000 is applicable for the year 2018-19.
- A car, motorcycle or any similar vehicle, which can’t carry a load of more than 1 tonne or 9 passengers is exempted from the Capital gains tax .
- Section 104-15 of CGT event B1 under Income Tax Assessment Act, 1997 states the treatment of capital gains when the right of Use and Enjoyment of CGT asset passes to another entity and the title of the asset might or might not pass before the termination of the agreement until the final installment is paid. The agreement is also called a hire purchase agreement.
- The taxable income in a financial year can be calculated as-
Income tax = (Taxable income x Rate) – Tax offset
The formula explains the computation of the tax liability of the taxpayer due in a financial year. The taxable income is to be multiplied with the applicable tax rate as per the tax payer’s income slab to get the Gross Income tax liability. This will then be adjusted by reducing the tax offsets from the Gross Income Tax Liability to arrive at the Tax liability for the period.
- The High Court case, FC of T v Day 2008 ATC 20-064, deals about deductibility of legal expenses incurred by an individual while assessing his taxable income. In the given case, the taxpayer was charged with 3 disciplinary charges by his employer on the grounds of -
I. Wrong usage of ID card at non- work related places
II. Failure to fulfil his duty to accurately record attendance at work.
III. Wrong usage of work vehicle and diesel claim for non- work related things.
As per the judgment, the judge held that only the second charge can be deducted from his taxable income while the rest two charges were held non-deductible. Later, on re appeal by the taxpayer, the panel of judges agreed that all 3 expenses can be deductible on different grounds.
This case sets the following grounds in respect to deduction of expenses-
- The expenses incurred in the course of earning a person’s taxable income are deductible
- The expenses which are not for private usage, i.e. related to work of the taxpayer, are deductible
H) Marginal rate of tax is incremental tax which is paid on the incremental income of the taxpayer. In other words, marginal tax means extra tax that you pay for extra dollar of your income.
e.g. If a person is earning $3500 per year and the tax rates are-
$ 1000 and below– 10%
$ 2000 and below – 20%
$ 3500 and below – 35%
Then, till $ 1000 he has to pay 10% tax, for next $ 1000 20% and last $ 1500 35%.
Hence, each part of the income is taxable as per the tax bracket they fall in. This is a progressive tax system that ATO has set up for the taxpayers.
Whereas, average tax is the total taxes paid by the taxpayer divided by your total income.
Therefore, the average rate of tax will always be less than the marginal rate of tax.
I) Consumption tax is the tax levied on the consumers for the goods and services consumed by him. Consumption tax is different for different types of goods, e.g. GST for goods and services, Excise tax for specific types of goods like alcohol, tobacco and tourism, Import duties for import of goods in the country, retail sales tax, etc .
As opposed to income tax, consumption tax is attributable to how much a person is consuming in an economy.
Answer to question no-2
- 100% deductible from the assessable income as the expense is incurred in the process of earning his taxable income.
- $ 300 is tax deductible (60% of $ 500)
- Not deductible as it is incurred for personal purposes
- Deductible as an expense before charging tax
- Entire $ 5000 is tax deductible as it is incurred for election campaign, hence work related
Answer to question no-3
It is analyzed that capital gain tax operates by the net capital gain as taxable income in the tax year in which the assets undertaken is being sold or disposed of. However, any gain is first discounted 50% for individual taxpayer or by 33.33 superannuation funds.
Any amount received by Andy as premium on the least capital reduced by the expenses will be considered as capital gain
Capital gain- $ 5000
The capital gain tax will be 5,000*10%= 500 MGT.
|0% tax bracket||$0 - $38,600||$0 - $77,200|
|15% tax bracket||$38,601 - $425,800||$77,201 - $479,000|
|20% tax bracket||$425,801 and above||$479,001 and above|
Capital gain tax on property for individual would be – 18% on the gain
Property value- $ 80,000
Consideration received= $ 40000
Actual value of the farm house= 800000- 40%*800000
Loss on capital= $ 80000
Tax on the capital loss will be zero and could be used by individual for the taxation credit.
Answer to question no-4
The prize of $2000 will be assessable income as the person has rendered his/her services and then won the prize for it. As advertising is a business like-activity, so the taxpayer will have to show this prize income in his/her books and will be liable to pay tax to the government for the same amount. This income will be included in the 'Other Income' head in the Income Tax return of the Tax payer. Further, the tax for this income will be charged according to the slab of the tax payer.
The employee received a sum of $500 for the cost incurred to travel Sydney for work. The employee booked the return ticket at a discounted cost of $120. The balance amount of $380 will not be an assessable income for the employee. For the employer, it is a cost part for the books of the company. The employer also has the policy to let keep the remaining amount with the employee if the work has been successfully done by the employee. For the employee the remaining amount of $380 is a remuneration for the expenses the employee has to occur for his/her trip to Sydney, and according to the income tax rules the remuneration received for tour expenses are not a part of assessable income.
An I-Phone worth $1000 from a client will be assessable income for the receiver. The iPhone has been gifted by the client and also it is worth $1000. The gifts received by an individual from any person related to his/her business will always be a assessable income. If the person would have received this gift from a family member or a friend then it would not be considered as assessable income, but this gift has been received by a client so this will be an assessable income. The whole amount $100 will be the assessable income for the person .
The $10,000 awarded as damage for personal injuries incurred by an individual in a car accident will not be an assessable income. The awards which are received against injuries in any kind of road accidents are not considered as assessable income. This award is exempted from Income Tax. The Tax payer will not have to pay any taxes on this income which is received by him/her for road accident. This income is always exempted from taxes .
The Taxpayer bought a share of $5 worth during the financial year. On 30th of June the share was trading at $7.50. In this case, the assessable amount for income tax would only be $2.5. As the taxpayer bought the share for $5 and at the end of the financial year the share was trading at $7.50, so the difference of the cost of purchase and the current trading price will be the profit booked by the taxpayer. So the assessable income will only be $2.50 for the Tax payer.
Answer to the question no-5
In the given case, it is found that Nisu arrives in Australia on 30th December 2018 from Nepal and enrolled himself in the accounting course in Australia. However, due to the personal reason, she had to leave the Australia on 30 June 2019. It is analyzed that in order to become the resident of the Australia, a person needs to fulfill following conditions which are given as below .
Tax residency test in Australia:
For the taxation purpose, the resident of the Australia is the person who resides in the country and meets with the certain terms and conditions.
The domicile test is the test which reveals the person who is by origin or through choice resides in the place of country. This is used to identify the residency of the individual based on his origin.
183 day test: This is the residency test in which a person or individual would be considered to the resident of the country if he lives in Australia more than 183 days. This period could be either continuous or separate period.
Another test is called commonwealth superannuation test which is used to assess the residency test o the government employees. Therefore, in this case, this test would not be used.
As per the rules and regulation of Taxation Ruling TR 98/17 Income tax, an individual who comes in Australia for the academic purpose, tourist purpose and business purpose for more than 183 days will be considered resident for the tax purpose (Apps, & Rees, 2013).
Analysis and recommendation of case
After assessing the case of Nisu, it is found that he has stayed in Australia for 180 days for his educational purpose which is less time which was given in 183 day test. Therefore, after assessing the details of Nisu, it could be inferred that he is not resident of Australia for the tax purpose as his stays fall low by 3 days.