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[SOLVED] Australian Taxation Law

Please determine the calculated correctly…………………

 

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According to the Australian Tax Office, which is the body responsible for collection of tax on behalf of the Australian government, the following are the Personal Income Tax rates applied in the year 2011/2012.

Taxable Income Range Tax on this Income
0 – $6,000 Nil
$6,000 – $37,000 15c for each $1 over $6,000
$37001 – $80,000 $4,650 plus 30c for each $1 over $37,000
$80,001 -$180,000 $17,550 plus 37c for each $1 over $80,000
$180,001 and Over $54,550 plus 45c for each $1 over $180,000

 

Individual Tax Liability is calculated as follows:

  1. Determine the Taxable Income. This includes that Salaries/Wages and Interests received, less all expenses incurred in acquiring this income. This expenses may be travelling expenses, dues to union bodies and other personal deductions such as various tax related expenses.
  2. After determining the Taxable Income, apply the necessary tax rates depending on which bracket the Income lies to determine the gross tax payable.
  3. By subtracting any rebates or tax offsets you derive the Net Tax Payable.
  4. A 1.5% Medicare Levy is mandatory and is added to the taxpayer’s taxable income. The Medical levy may however e increased of decreased in the case of an exemption or surcharge reduction.

Salary                                                                                           XX

Interests                                                                                     XX

Assessable Income                                                            XX

Less: Subscriptions                                                               XX

Membership fee                                    XX                  (XX)

    Taxable Income                                                                XX

Gross Tax Payable(% of Taxable Income)                             XX

Less: Rebate on Medical expense                                           (XX)

Ordinary Tax Payable                                                          XX

Add: Medical Levy (1.5% × Taxable income)                       XX

   2011/2012 Tax Payable                                                      XX

Capital gain, though referred to separately is included in the individual’s income proceeds. It is the proceeds arising from the sale or disposal of an asset. A Capital Loss may however also occur incase the proceeds from the sale of the asset are less than the cost of acquisition of the asset.

Capital Gain of the Asset = Proceeds from Sale – Cost of Acquiring the Asset

Proceeds from Sale          = Selling Price – Cost of Sale

= $305,000 – (6,000 + 600)

= $298,400

Cost of Acquiring Asset   = Buying price + Cost of Purchase

= $85,000 + $5,000

= $90,000

Capital Gain of the Asset = $298,400 – $90,000

= $208,400

From the calculation above, it is therefore evident that from the sale of the House, James realized a Capital Gain of $208,400. There are not Capital losses in the current or previous years. The business has also been in existence for more than a year. According to the 1999 indexation on capital gains, the Company Gain realized should be discounted by 50%

Therefore, Net Company Gain = 50% × $208,400

= $104,200

In the determination to James’ Taxable Income and his Tax Payable for the year 2011/2012 as indicated below, there were various entries I included and considered leaving out some. The Salary in this calculation was necessary as it was the key item to be taxed when considering Taxable income. Judging from the fact that the income of $95,000 was well past the taxable threshold, it as necessary that it be included. Rent realized in the current year of $6,400 by James is also considered as part of his income and is thus taxable.

The disposal of the House raised money that after calculations yielded a Capital Gain and as such it was necessary to include it in the determination of Taxable income and Tax payable. If there were capital losses in the current or previous years that had not been deducted off other periods’ Capital gains, it would have been included. However, the year’s Capital gain calculation was straight forward and involved subtracting the cost of acquiring the asset, which was the price of purchase of the house and the costs involved in its purchase, from the proceeds of the sale which included the selling price less the legal costs and agent commission.

Management commission, repairs to the fence, repaint of the stairs, replacement of the hot water system are all expenses involved in the generation of the stated incomes. Expenses such as legal fees, agent commission, and cost of purchase are however included in the direct calculation of the Cost of Sale and purchase of the asset. Proceed from the sale of scrap is however omitted. This is due to the fact that this is disposal of an already fully depreciated item. It is therefore not taxable.

James’ medical expenses for he year amounted to more than $2,000. A rebate is therefore available to him. Normally the rebate would therefore be 20% of the excess amount over $2,000. In the statement however, rebate amount have already been scheduled.  Contributions paid to health insurance funds do not qualify for rebate. This is why the rebate from Medibank a private health insurance cover was not liable. The rebates from the general practitioner and the dental work were liable.

$  $
Salary     95,000.00
Net Capital Gain   104,200.00
Rent for the Year       6,400.00
  Assessable Income   205,600.00
Less: Management Commission 640
Repairs to Fence 1500
Repaint Stairs 1200
Hot water System Replacement 4500
New Air-conditioner 900       8,740.00
  Taxable Income   196,860.00
Gross Tax Payables $54,550 + (0.45 × 16,890)     62,137.00
Less:
      Rebate on Medicare expense 20% × (3300 – 2000)          260.00
  Ordinary Tax Payable     61,877.00
Add:
      Medicare Levy (1.5% × 196,860)       2,952.90
2011/2012 Tax Payable     64,829.90

References

Carr, Edwin et al Australian Master Tax Guide (2001)

Leibler, Arnold (2010) Australian Guide to Legal Citation

Australian Taxation Office (24 November 2011) http://www.ato.gov.au/content/00208572.htm

 

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