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Calculation Of Income Tax Case Study

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Questions:

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. 
 
 

Answers:

1.Income of Mr Marc for the year ending on 30th 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/

OR

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