Calculation Of Income Tax Case Study

1.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. 

2. 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.     

3. Calculate the Amount of tax to be withheld by the Employer due to the Termination of her Employment. 

 

 

1.Income of Mr Marc for the year ending on 30^th June 2016:

	(Amount in $)
Salary (6-5 ITAA97):	48000
Annual leave compensation received (6-5 ITAA97):	2500
Travel allowance (6-5 ITAA97):	1000
Worker compensation (Note 1):	5000
Interest Income (under subsection 6-5 (4)):	1000
Amount received as get well gesture:	500
Assessable Income:	58000

 Calculation of income tax payable for the tax year 2015-16

Year 2015-16                                       ( Amount in $)
Calculation of income tax payable by Mr Marc
Particular	Income	Dividend	Capital Gain	Tax already paid
Gross salary	48000			11500
Annual leave compensation	2500
Travel allowance	1000
Worker Compensation	5000
Interest income on term deposit	1000			150
Amount received as get well gesture	500
Total Income	58000.00		0	11650
Deductions (note 2)				500
Adjusted Income				57500
Personal allowance				10600
(Note: In present case as the income is below than 100,000 ; thus personal allowance will be provided)
Taxable Income				46900
Tax (working note 3 )				7213
Already Paid (note 4)
Refund				4437

 

Working Notes
	Amount in $
Note -1
Worker Compensation
In accordance with the case law (FCT v Dixon (1952) 86 CLR 540; replacement principle will be applied at amount received as worker compensation will be taxable, and rest amount will be exempted (Barkoczy, 2016).	5000
Note -2
Deduction
Amount paid for firefighting gear	500

Note – 3

Calculation of Tax

0-16227	0	0
16227-37000	19%	3946.87
37001-46900	32.5%	3217.00
Total Tax		7164.00
FBT
$ 500 (1-49%)		980
Tax = 980 *49 %		49
Total tax		7213

 Note-4

Tax already deducted
Tax deducted by employer	11500
Tax deducted by bank	150
Total	11650

2.Determination of taxability of events

By considering the provided case study, there are three events two are redundancy package and Payment in lieu of annual leave provided by the employer and last one is Rent free benefit received in the lease. In accordance with the Australian Taxation office, in the case where genuine redundancy at the time of termination then same will be taxable but at concessional rates. Same is supported in taxation ruling of TR 2009/2 (Redundancy payments, 2016). Same provisions are applied in case if payment is received in against of lieu of annual leave. This provision is covered under Section 15-25 of Taxation Administration Act 1953 (TAA). However, in the case of rent free lease for 6 months is not taxable the covered period is covered under concession lease terms. Further, the landlord is not in a position to get a deduction as rent is not payable by the tenant consequently it will not be considered income Jane Nobles.

3.Amount of tax to be withheld by employer

Particulars	Amount
Payment related to genuine redundancy	$529 (WN 1)
Payment in lieu of annual leave	$5600
Rent free benefit	-
Total taxable income	$6129
Tax rate (inclusive of 2% medical levy)	17%(WN 2)
Tax to be paid	$1042

Working note 1

Redundancy benefit is not taxable up to a certain extent. By considering provisions of 2016/17 exempt amount is $9,936 along with $4,969 to be multiplied by years served by an employee.

Exempt amount

=$9936 + $4969*15

=$84471

Taxable amount:

=$85000-$84471

=$529

Working note 2

ETP will be concessional taxed at a maximum of 32% in case age of the individual is below 55) and 17% will be applied if age is 55 or higher. This rate is inclusive of 2% medical levy up to the income of $195000. On higher income, tax to be paid at the rate of 47% (Australian tax legislation, 2002).

References

Australian tax legislation 2002. (2002) (1st ed.). Pyrmont, N.S.W.

Barkoczy, S. (2016), Core Tax Legislation & Study Guide, 19th edn, Oxford University Press.

Cheng, H., & Yang, C. (2013). Some Taxation Theorems in the Hotelling Model. Australian Economic Papers, 52(3-4), 143-158. https://dx.doi.org/10.1111/1467-8454.12013

LAFFER, K. (2008). TAXATION REFORM IN AUSTRALIA. Economic Record, 18(2), 168-179. https://dx.doi.org/10.1111/j.1475-4932.1942.tb02666.x

Redundancy payments. (2017). Ato.gov.au. Retrieved 28 March 2017, from https://www.ato.gov.au/Individuals/Working/Working-as-an-employee/Leaving-your-job/Redundancy-payments/