Question:
Marc is an Australian resident for tax purposes. He is 39 years of age, single and is employed as a fireman. Marc received the following amounts during the year ending 30 June 2016:
(i) Salary from his employer: $48,000.
(ii) 15 Days annual leave owing to her which had accrued since May 2014:$2,500.
(iii) An annual allowance of $1,000 towards travel expenses.
(iv) Compensation payments due to injuries sustained in an industrialaccident as follows
a. Workers compensation: $1,000 × 5 weeks $5,000
b. Compensation for loss of his right hand: $35,000
c. Social security disability support pension: 7 weeks $1,000
(v) Interest from the Bank of America Term Deposit Account held in America: $850. This amount is after 15% tax has been withheld by the Bank of America.
(vi) Cash: $500 and an expensive bottle of Whisky from his co-workers as a get well gesture.During the year his employer has deducted $11,500 in PAYG withholdings from his salary and workers compensation payment.
On the other hand, Marc spent $500 on firefighting gear and has kept all necessary documentation to support this expenditure. This expense will constitute a deduction.
Required:
Calculate the net income tax payable or refund due to the taxpayer for the 2015/2016 tax year. State the specific taxation rules relevant to the above events to support your arguments and calculations.
The Case of Jane Nobles
Jane Nobles aged 56 was employed by the CheeseCake Shop for 14 years as a pastry cook. On 1 April 2016 Jane received a genuine redundancy package of $85,000 from her employer due to a business restructure. She also received a payment of $5,600 in lieu of annual leave on the termination of her employment.
After a month holiday in the Greek Islands Jane decided to start a cake decorating business and signs a lease with a monthly rental of $2,500. To encourage her to sign a long term lease the property manager of the building
offered her a rent free period of six months.
Requirements:
a) Determine whether the above events are assessable during the year ending 30 June 2016 Ensure you state the specific legislation, tax rulings and case law to support your answer.
b) Calculate the amount of tax to be withheld by the employer due to the termination of her employment.
Answer:
The income assessable and the gross income tax payable or refundable for Marc are calculated on the basis of following assumptions and rules for the taxable period 2015-16:
- Under Section6-5, Salary from employer is treated as ordinary assessable income.
- Under Section83-A, 15 days’ annual leave is also included in assessable income.
- Under Section2, Annual travel allowance is incorporated in assessable income.
- Under Section 15.2, Worker’s compensation, received during the termination due to injury, is also considered as an assessable income.
- The Compensation for loss of salary is a form of compensation paid for inability due to the accident. It is understood that the injury is enclosed under Safety, Rehabilitation & Compensation Act, 1992 and for that reason; it would be exempted for taxable purposes under Section32. Furthermore, as it is paid for inability of Marc, it does not fall under the Employment Termination Payment.
- Marc’s age is currently below the pension age i.e. he is just 39 years of age. Therefore, under Section52, the pension for the social security disability support need not be considered as assessable income. However, the taxpayers have to display the sum in the assessable revenue and should not be included for the determination of the taxable income.
- Interest from the Bank of America is a foreign interest income and measurable for taxation reason under Section 6.5. Marc has to make obvious the occupied interest sum, accrued from the bank. As per the treaty amid United America of America and Australia, any amount deducted from any Australian resident as tax withholdings by any American organization would be taken away from the resident’s gross tax sum also. Hence, the amount, deducted from the bank’s end, should be deducted from the gross tax amount of Marc.
- The cash and exclusive bottle of whiskey, given to Marc by his co-workers are not able to be gauged, as the amount is not very noteworthy.
- Marc is a fireman and involves compulsory firefighting gears for the purpose of employment. Therefore, the sum should be considered as deductible expenditure of Marc under section1.
- As PAYG is deducted as advance tax deduction throughout the payment to employees, it is normally deducted from the gross tax payable of the taxpayer.
The net tax payable or refundable is computed in the following
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As per the above table, it can be stated that Marc would get refund of $1,578 from ATO due to over deductions by the employee in form of PAYG.
The incomes and expenses of Jane Nobles for taxable purpose are talked about below:
- The legitimate redundancy is a taxable income. On the other hand, it is necessary to calculate the tax-free constituent of the taxpayer, which is intended on the foundation of basic pay and service occupancy of the taxpayer. If the genuine redundancy, received, is lesser than the tax-free component, then the taxpayer does not have to pay tax on the income under section 83-C.
In this case, the basic pay of Jane is not made available in the case study. Therefore, it cannot be confirmed clearly whether the redundancy receipt would be taxable or not.
- Annual leave payment on termination is taxable under section 83-A.
- Monthly rental of business property is deductible under section 8.1. However, as Jane is not requiring paying any amount for the first six months, it would not be considered as deductible expenses for the period ending 30thJune, 2016.
As per the age of Jane, the PAYG withholding for her genuine redundancy would be as follows:
Bibliography:-
INCOME TAX ASSESSMENT ACT 1997 - SECT 8.1General Deductions (2017) Austlii.edu.au <https://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html>
Schedule 11 - Tax Table For Employment Termination Payments (2017) Ato.gov.au <https://www.ato.gov.au/Rates/Schedule-11---Tax-table-for-employment-termination-payments/?page=5#Table_A__Withholding_rates_for_ETPs>
Sharkey, N. and Murray, I., 2015. Reinventing administrative leadership in Australian taxation: beware the fine balance of social psychological and rule of law principles. Browser Download This Paper.Woellner, R. H, Australian Taxation Law 2012 (CCH Australia, 1st ed, 2013).
