Professor:

ACC3TAX Assignment: 3

ACC3TAX Assignment: Income Tax

ACC3TAX Assignment: Income Tax

Questions (a): The extent to which Mary is assessable based on her transactions

In Australia, the Income Tax Assessment Act 1936 and 1997 (ITAA1936 and ITAA1997) are the major rulings that deal with income tax. Section 6 (1) of the ITAA1936 defines an Australian resident as a person who resides in Australia (Ziaras, 2014, p. 1271). It further explains that actual presence in Australia for more than 183 days in a revenue year makes one a legitimate occupant of Australia unless he/she demonstrates otherwise. According to sections 4 to 10 of the ITAA1997, a person’s taxable amount for the revenue year regulates the individual’s obligation to pay income tax (Ziaras, 2014, p. 1272). The sum of the taxpayer’s ordinary income and statutory revenue in a tax year equals to his/her assessable income, which also includes the net capital gains. Australian courts accept that average earnings may arise from:

  1. Rewards after giving personal service, which may be in the form of salary and wages.

  2. Profits generated from commercial transactions.

  3. Returns from investments such as interest from bank savings, dividends from companies and rent from investments.

Income Tax Assessment Act further considers social security benefits, foreign pensions and some compensation funds to belong to ordinary income because taxpayers rely on them. Therefore, Mary is assessable as a permanent resident of Australia, who has access to regular and statutory income. She has an obligation to pay tax under the income tax (Individual) Act (CCH, 2012, p. 363).

Question (b): Assessable income, taxable income, and tax payable for 2015/2016 tax year

Assessable income:

The assessable income = ordinary + statutory amounts. From the transactions, her assessable income will be:

Commission

Interest from ANZ Bank Account

Interest from Queens Town Deposit a/c

Ten days extended leave

Cash prize in an annual competition

We exclude redundancy payment and compensation for severe injuries since the two benefits are tax-free according to the Australian law.

Taxable income:

Taxable income = Assessable income – Allowed deductions

Mary lacks allowed deductions; hence her Taxable income equals Assessable income. However, she qualifies for a medical levy of 2% since her taxable amount is more than $21,335 Government (2016).

Professor:

Professor: 1

Tax payable for 2015/2016 tax year

The following table indicates the current tax threshold (2016-2017).

Assessable Revenue

Income tax on the revenue

Between $0 and $18,200

Between $18,201 and $37,000

19c for every $1 in excess of $18,200

Between $37,001 and $80,000

$3,572 and an additional of 32.5c for each $1 over $37,000

Between $80,001 and $180,000

$17,547 with an addition of 37c for every $1 over $80,000

$180,001 and over

$54,547 with an addition of 45c for every $1 in excess of $180,000

For the first $18,200, Mary will not pay any tax. For the amount between $18,201 and $37,000, Mary paid an interest ofProfessor: 2. For the amount more than $37,000, Mary paid a tax of $3,572 and an additional ofProfessor: 3.

Therefore, the total tax payable isProfessor: 4. The PAYG suppressions allow the employers to collect tax from the payments they make to the employees, with an aim to meet their end-of-year tax accountabilities. The total withholdings for the case of Mary were:

Professor: 5

The withheld amounts exceed the tax payable.

References

CCH. (2012). Australian Master Tax Guide. Sydney: CCH Australia Limited.

The government, A. (2016, May 19). Medicare Levy Reduction for Low-Income Earners. Retrieved August 16, 2016, from Australian Taxation Office: https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-reduction-for-low-income-earners/

Ziaras, A. (2014). The Law Handbook: Your Practical Guide to the Law in The South Wales. Sydney: Thompson Reuters (Professional) Australia Limited.