Taxation Assignment

5Taxable income

Taxable income

Assessable income is the income which is subject to tax. A taxpayer’s assessable income normally include ordinary income and their statutory income and at the same time excludes the tax exempt from the income (Series 2015). In circumstances where the tax allowable income are deducted from the assessable income then the balance is no longer taxable income but rather taxable income. From the case of Mary, the assessable income comprises of ordinary income and statutory income.

The ordinary income includes:-

  • Salary of $ 45,000

  • Entertainment allowance of $ 1,500

  • Interest from the Banks $ 500

  • Cash price of $ 1,500

Statutory income include:-

  • $ 80,000 under approved early retirement

  • Injury compensation of $ 2500

  • Price winning $ 1500

Total Assessable income will be

Assessable Income

Salary income

$ 45,000.00

Entertainment allowance

$ 1,500.00

Interest from ANZ

Cash price winning

$ 1,500.00

Leave pay

$ 2,000.00

Interest from term deposit

Work compensation

$ 2,500.00

Early retirement

$ 80,000.00

Total income

$ 133,850.00

The income tax assessment Act of 1936 section 6 (1AA) gives the provision of the income gives expression for specific meaning and the provision and how it relates to the Income tax assessment act of 1997 (Burkhauser et al., 2015). In the case of Rowe, the taxpayer was being compensated for the amount equaled to the total amount of the legal fees which he incurred while defending against a legal battle for himself. In such circumstances the court decided that there was no benefits and therefore, the compensation did not amount to assessable tax income. (Sharkey 2015). In another case of McArdle, the taxpayer was given a consideration for his option to buy given assets. In their decision, the court held that the sale of rights and options was not ordinary income hence did not amount to assessable income.

Taxable income

Salary income

$ 45,000.00

Entertainment allowance

$ 1,500.00

Interest from ANZ

Cash price winning

$ 1,500.00

Leave pay

$ 2,000.00

Interest from term deposit

Work compensation

$ 2,500.00

Early retirement

$ 80,000.00

Total income

$ 133,850.00

Deductible income

$ 11,100.00

Long service withholding

$ 1,500.00

interest from term deposit (Taxed)

Total deductible income

$ 14,090.00

Taxable income

$ 119,760.00

Income tax to be paid:

Medicare levy:

Your income after tax & Medicare levy: $85,107

$ 85,107.00

Your marginal tax rate:

  • It should be noted that marginal tax rates normally applies to any income that ranges between $ 80,000 and $180,000 per annum hence Mary falls in that category with annual taxable income of $ 119,760.0.

  • This does not include any Medicare levy which is normally taxable at 2% of income for the tear

  • Surcharges of the Medicare levy of 1-1.5% is not included in the calculation

Offset=$32,258 — [($ 119,760.00-85,107) x 1.5%] = 31738.205

Reference

Series, F.A.A.I., 2015. A More Precise Way To Measure After-Tax Performance: FTSE ASFA Australia Index Series.

Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.

Sharkey, N., 2015. Coming to Australia: Cross border and Australian income tax complexities with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-part 2. Brief, 42(11), p.41.