Calculating Net Tax Payable For Jane Brown And Green Pty Ltd

1.Jane Brown (aged 30).

Jane is an eligible beneficiary of the Brown Family Discretionary Trust.  The trustees decided to distribute a cash amount of $20,000 to Jane for the current tax year.

Jane also receives $20,000 fully franked dividends.  Jane has a $20,000 HELP debt.

Jane received $79,000 (gross income) from employment at Company Pty Ltd for the period 1 July 2016 to 30 June 2017.  The correct amount of PAYG has been withheld.  

Jane reports interest income of $475.

Jane advises of investment expenses of $250.

Jane receives rental income of $35,000 from an investment property.  The associated expenses are:

• Mortgage repayments: $25,000
• Repairs: $2,000
• Rates: $2,500
• Insurance: $500

Jane sold a parcel of 200 Coles Myer Group shares on 1 July 2016 for $3,500.  She had purchased these shares on 1 July 2009 for $800. Her brokerage costs of buying and selling were $300 in total.

Jane made donations (for which she presents tax invoices and receipts) to the value of $900.

Jane does not wear a uniform to work.

Jane pays premiums on an income protection insurance policy equivalent to $1,000 per year.

Jane does not have Private Health Insurance.

Calculate the net tax payable/ refundable situation for Jane for the current tax year (include references, calculations & assumptions)

2.Green Pty Ltd is a resident gardening company registered with the following information:

TFN: 859 376 213

ABN: 79 512 647 864

ACN: 86 572 314 719

The following is the financial information for the year ended 30 June 2017.

GST (where it is applicable) has not been removed from the following amounts.

Depreciation (for tax purposes) was reported to be $5,500 for the current year.

Calculate the net tax payable/ refundable situation for Green Pty Ltd (include references, calculations & assumptions)

Jane Brown's Tax Calculation

1.This case study contains different information about Jane Brown. The main issue is to compute the net tax refundable or payable in the existing tax year. The tax is computed through application of different provisions of pertinent laws.

“Section 4(1) of the Income Tax Assessment Act” denotes that each individual, firm and other organisation are needed to incur income tax. “Section 4(10) of the Income Tax Assessment Act” states that tax payable is computed through application of tax rate with taxable income (Aust 2013). “Section 4(15) of the Income Tax Assessment Act” stated that taxable income is computed by deducting allowable deduction from the overall assessable income. Such assessable income is categorised as statutory income and ordinary income. “Section 6(5) of the Income Tax Assessment Act” denotes that income in accordance with the ordinary concept is adjudged as ordinary income. Any income, which could not be considered as ordinary, is termed as statutory income in accordance with “Section 6(10) of the Income Tax Assessment Act”.

Hence, both “Section 6(5) and Section 6(10) of the Income Tax Assessment Act” denote that income obtained from all sources are taxable for resident taxpayers and the income obtained from the nation is taxable for the non-residents. It could be said that the ascertainment of the taxpayer’s residential status is necessary before taxable income is computed. “Section 6(1) of the Income Tax Assessment Act” lays stress on for rules, which ought to be applied to ascertain the taxpayer’s residential status. However, due to the lack of adequate information, it is assumed that Jane Brown holds the citizenship of Australia for tax purpose (Barkoczy 2016).

“Division 6 of the Income Tax Assessment Act 1936” is concerned with the income of the trust. It is assumed that the trustee is a citizen for working out the trust’s net income. In addition, the net income of the trust could be divided to the beneficiary in most effective ways. The act denotes that a trust is not needed to incur income tax on the distributed amount (Boll 2014). However, in case of undistributed income, the trust needs to make tax payments. In addition, tax payment is needed on the sum of money distributed on the part of the family trust. It is noteworthy that since this is not a special income, it needs to be incorporated in assessable income and it is to be taxed at marginal rate. According to the case study, Jane has obtained $2,000 from the family. Hence, depending on discussion, it could be stated that the trust receipt need to be in assessable income (Braithwaite 2017).

“Section 44 of the Income Tax Assessment Act 1936” denotes that assessable income of the resident shareholder of the organisation needs to incorporate dividend. Dividend could be defined as the gain distributed on the part of an organisation obtained from any source. The dividend obtained is an ordinary income in accordance with “Section 6(5) of the Income Tax Assessment Act 1997”. Thus, Jane has received a franked dividend, which needs to be incorporated in assessable income. Due to inadequate information, it has been assumed that the gross dividend is $20,000 (Lamb, Erskine and Fletcher 2015).

Calculation of Green Pty Ltd's Net Tax Payable

According to “Section 6(5) of the Income Tax Assessment Act 1997”, salary could be adjudged as assessable income. Hence, the salary amount of Jane could be included in assessable income. The salary needs to be incorporated in gross salary; thus, PAYG needs to be added up with the overall salary. The commissioner depending on “Sections 15-25 and 15-30 of the Tax Administration Act 1953” forms the schedule of withholding (Lang 2014).

According to “Section 6-5 of the ITAA 1997”, interest could be considered as ordinary income. Hence, the interest income amounting to $475 needs to be incorporated in assessable income. In addition, the investment income needs to be included in assessable income as well in compliance with “Section 6(5) of the ITAA 1997”. According to the provided case, the rental property income needs to be incorporated in assessable income. As per “Section 8(1) of the Income Tax Assessment Act”, the taxpayer could subtract from assessable income any outgoing necessary for earning compared to assessable income. Therefore, in this case, amount spent for gain from investment property needs to be subtracted. The overall amount needs to be taken into account as the assessable income (Richardson, Taylor and Lanis 2013).

“Section 102-5 of the Income Tax Assessment Act 1997” denotes that the net capital gain in the tax year needs to be included in assessable income. According to the provided case, the acquisition of shares has been made in 2009, which signifies that the method of discount could be used. The payment of insurance premium is made to protect income, which is deductible in the form of sum received as taxable.

According to the above discussion, the computation of taxable income is made, which denotes that the tax payable is $34,715. In addition, it is presumed that the interest amount is incorporated in mortgage repayment and the amount is $15,000. The computation is discussed as follows:

Table 1: Computation of taxable income

(Source: As created by author)

2.According to the provided case, Green Private Limited is a resident organisation and the major issue is to determine the taxable income along with computing it. According to the “Income Tax Assessment Act”, expenditures are made to earn assessable income, which are allowed in the form of deduction. “Section 27-15 of the Income Tax Assessment Act 1997” states that the credit related to input tax could be subtracted in the form of outgoing or loss, as per the act. Thus, it could be stated that the organisation would need to adjust expenditures with GST (Taylor and Richardson 2013).

Moreover, assumption has been made that gross dividend amount has been provided. The rate of tax for the organisation is 30%. However, in case of small-sized organisations, the tax rate is 28.5%. An organisation is categorised as small-sized, in case; the aggregate business turnover is below $2 million. According to the provided case, the annual turnover of the organisation is below $2 million. Hence, the tax rate of 28.5% would be applied in this case. The computation is presented as follows:

Table 2: Taxable income

(Source: As created by author)

References:

Aust, A., 2013. Modern treaty law and practice. Cambridge University Press.

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Boll, K., 2014. Shady car dealings and taxing work practices: An ethnography of a tax audit process. Accounting, Organizations and Society, 39(1), pp.1-19.

Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Lamb, D., Erskine, P.D. and Fletcher, A., 2015. Widening gap between expectations and practice in Australian minesite rehabilitation. Ecological Management & Restoration, 16(3), pp.186-195.

Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.

Richardson, G., Taylor, G. and Lanis, R., 2013. Determinants of transfer pricing aggressiveness: Empirical evidence from Australian firms. Journal of Contemporary Accounting & Economics, 9(2), pp.136-150.

Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.