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Calculation of Taxable Income for Jane Brown

Information as regards Jane Brown is hereby provided in this study. In case, the main objective is to enumerate the net payable amount of tax or else amount refundable during a particular period of time. In this case, the tax is enumerated by applying different provisions of the pertinent law.

The particular section 4.1 of the Income Tax Assessment Act, every individual, corporation as well as other entities have the need to pay income tax. As per the section 4.10 of the Income Tax Assessment Act, tax payable can be enumerated by implementing the tax rate along with the taxable earning. Again, as per the section 6.5 of the Income Tax Assessment Act, income/earnings as per the usual notion is referred to as the ordinary income. However, the earnings other than the ordinary one is essentially referred to as the statutory income according to the directives stipulated under section 6.10 (Income Tax Assessment Act) (Bartleet et al. 2014). However, under the directives stipulated under both the sections (6.5 as well as 6.10) of this particular Income Tax Assessment Act, earnings accepted from different sources are necessarily taxable and for particularly the non-residents, the income/earnings received from particularly Australia is necessarily taxable. Thus, it can be hereby mentioned that determining residential status of the tax payer is necessary before enumeration of taxable earning. According to section 6.1 under the Income Tax Assessment Act of 1936, there are essentially four different rules that need to be implemented for ascertainment of the residential status of particular payer of tax (Braithwaite 2017). Nevertheless, in this specific case, there exists inadequate information, therefore, it can be supposed that Jane Brown is essentially an Australian resident for the purpose of taxation. The division 6 mentioned under the Income Tax Assessment Act of particularly 1936 essentially handle the trust income. In essential, the net earnings of the trust can be properly is calculated based on the supposition that the trustee is essentially a resident. In particular, the net earnings of particularly family trust can be circulated to different beneficiaries in a way that can be considered to be fitting. Essentially, this act also explains that a trust does not require to make payments for income tax on the amount distributed. Particularly, the trust is only required to make payments of tax on the undistributed earnings. Again, the beneficiary is also required to payments for tax on particularly the amount distributed by essentially the family trust. In this case, it can be observed that it is not a distinctive earning, therefore, this need to be included in the assessable earning and need to be taxed at marginal rate (Cao et al. 2015). As per the present case, it can be said that Jane received an amount $2000 from own family. Thus, grounded on the discussions, it can be hereby inferred that amount received from the trust have to be assessable earning.

Determining Taxable Income for a Resident Corporation

According to the principle stipulated under the section 44 of particularly Income Tax Assessment Act 1936, the assessable earning of particularly resident shareholder of the corporation need to take account of dividend (Tran-Nam et al. 2014). In particular, the dividend are necessarily the profits that are circulated by the corporation earned from different source. Again, the dividend gained is certainly an ordinary earning according to section 6.5 stipulated under the Income Tax Assessment Act of the year 1997 (Cumming and Johan 2016). However, in this specific case, the entire dividend of Jane have the need to be included as assessable earning. Again, as the information delivered is inadequate, therefore, it is supposed that essentially $20000 is essentially the gross dividend.

In particular, the salary is an assessable earning as mentioned under the definite section 6.5 (Income Tax Assessment of the year 1997). Thus, amount of salary accepted by Jane have the need to be included as the assessable earning (Dowling 2014). Essentially, the salary that need to be taken account of is essentially gross salary, so the PAYG have the need to be added to the net salary received. In addition to this, the commissioner grounded on the directive stipulated under the section 15 to 25 and section 15 to 30 of the Act (Tax Administration Act of the year 1953) helps in developing the entire withholding agenda. Essentially, the interest can be considered to be an ordinary source of earning, or in other words, ordinary income according to the directive mentioned under the section 6.5 of essentially the ITAA of the year 1997, consequently, the interest earning amounting to $475 need to be counted in assessable earning (Eccleston and Woolley 2015).

Again, the earnings from particular investments need to be counted in the assessable income according to the regulation stipulated under the section 6 to 5 of particularly ITAA of the year 1997 (Lang 2014). However, in this particular case, the earning that is acquired from rental property also need to be counted in the assessable earnings. Under the section 8-1 of essentially the Income Tax Assessment Act mentions that the payer of the tax might need to deduct from the assessable earnings any kind of outgoing that is essential for income and thereafter assessable earnings (Taylor and Richardson 2014). Thus, in this specific case, expends that are eventually incurred for the generation of earning from investment property also need to be deducted. Essentially, the net earnings also need to be counted in the assessable earnings.

The regulation stipulated under the section 102-5 of essentially the Income Tax Assessment Act of the year 1997 mentions that assessable earnings need to count in the net capital gain during a particular year (Saad 2014). However, in this specific case, as the shares were gained during the year 2009 so the discount mechanism can be implemented. In particular, as per the section 115-10 of particularly ITAA of the year 1997 mentions about the discounting of the capital gain. Again, the insurance premium compensated for guarding of income can be deducted as the amount accepted. Grounded on the above discussion, the taxable earning can be enumerated (Saad et al. 2014). The current calculation reflects that the amount payable as tax is around $34715. The entire calculation is as presented below.

  • It is supposed that the repayment for mortgage comprises of the interest that amounts to $15000.

Calculation of Taxable income of Jane for the year 2015-16

Particulars

References

Amount

Amount

Figure

Authority

Income received from Trust

ITAA 36 Division 36

$20,000.00

Dividend Income

Fully Franked (Net)

$14,000.00

franking Credit

$6,000.00

Gross Dividend

ITAA 36 s44 & ITAA 97 s6.5

$20,000.00

Salary Income

ITAA 97 s6.5

$79,000.00

Interest income

ITAA 97 s6.5

$475.00

Rent Income

ITAA 97 s6.5

$35,000.00

Capital gain from sale of shares

Sales proceed

$3,500.00

Less:

Cost of Acquisition

$800.00

Gross capital Gain

$2,700.00

Less:

Discount @ 50%

$1,350.00

Net Capital Gain

ITAA 97 s102.5 & s115.10

$1,350.00

Assessable Income

$155,825.00

Allowable Deductions

Repair

ITAA 97 s8.1

$2,000.00

Interest on Mortgage

ITAA 97 s8.1

$15,000.00

rates

ITAA 97 s8.1

$2,500.00

Insurance

ITAA 97 s8.1

$500.00

investment advise

ITAA 97 s8.1

$250.00

Insurance for Income Protection

ITAA 97 s8-1

$1,000.00

Total deduction

$21,250.00

Taxable income

$134,575.00

Tax on taxable income ($17547+.37(134575-80000))

$37,739.75

Medicare Levy

$2,691.50

Medicare levy surcharge

1682.19

Gross Tax Payable

42113.44

Tax offsets/Rebates/ Credits

Special Zone Rebate

ITAA 36 s79A

1173.00

franking credit

ITAA 97 s205.15

-$8,571.43

Tax Payable

$34,715.01

 Less:

PAYG

$(18828.00)

Net tax Payable

15887.01

Disregarded Items

Type

Help debt

$20000

Table 1: Enumeration of Taxable Earning

(Source: Prepared by Author)

As per the given case, it is hereby required to determine taxable earning and enumerate the taxable earning of Green Pty Ltd is necessarily, a resident corporation.

The Income Tax Assessment Act shows that the incomes from the business is necessarily taxable. Under the section 8-1 of particularly the Income Assessment Act of the year 1997, expend that are essentially incurred for earning, assessable earning can be permitted to be subtracted (Silver et al. 2016). As per section 27-15 of particularly the Income Tax Assessment Act of the year 1997, it can be said that input tax credit can be subtracted as loss or else outgoing especially under this specific act (Taylor and Richardson 2013). Therefore, it can be mentioned that the corporation will have the need to properly adjust different expends. Essentially, it is supposed that the amount of dividend delivered is gross (Snape and De Souza 2016). As a whole, the rate of company tax is around 30%. Nevertheless, for small corporations, the rate of company tax is approximately 28.5%. Essentially, the business is necessarily said to be very small in case if the total turnover from the particular business is essentially below 2 million. However, in this specific case, the turnover of the corporation Green Pty Ltd is lower than 2 million, therefore, the rate 28.5% is applicable. The table below presents the calculation:

Computation of the Taxable Income and Tax Payable for Green Pty Ltd

Particular

Reference

Amount

Amount

Figure

Authority

Sales

ITAA 97 s6.5

$313,636.36

Dividend fully franked

$10,260.00

Add: franking Credit

$4,397.14

Gross Dividend

ITAA 36 s44 & ITAA 97 s6.5

$14,657.14

Interest

ITAA 97 s6.5

$900.00

Compensation from client

ITAA 97 s6.5

$4,000.00

Net Capital gain

ITAA 97 s102.5 & s115.10

$4,000.00

Assessable Income

$337,193.51

Allowable Deduction

Advertising

ITAA 97 s8.1

$909.09

Bad debts

ITAA 97 s8.1

$900.00

Bank Charges

ITAA 97 s8.1

$150.00

Capital expenditure (qualifies for immediate deduction)

ITAA 97 s8.1

$2,727.27

Cost of sales

ITAA 97 s8.1

$54,545.45

Sub-contractor expenses

ITAA 97 s8.1

$20,909.09

Depreciation expenses

ITAA 97 s8.1

$5,500.00

Electricity

ITAA 97 s8.1

$800.00

Entertainment

ITAA 97 s8.1

$1,818.18

Environmental protection (disposal of chemicals)

ITAA 97 s8.1

$600.00

Fines (speeding and parking tickets)

ITAA 97 s8.1

$500.00

Insurance

ITAA 97 s8.1

$600.00

Interest expenses within Australia

ITAA 97 s8.1

$1,200.00

Lease expenses within Australia

ITAA 97 s8.1

$4,000.00

Motor Vehicle 3rd Party insurance

ITAA 97 s8.1

$550.00

Motor Vehicle expenses (petrol & maintenance)

ITAA 97 s8.1

$3,636.36

Motor Vehicle Registration

ITAA 97 s8.1

$1,200.00

Rent expenses

ITAA 97 s8.1

$10,727.27

Stationery & Office supplies

ITAA 97 s8.1

$181.82

Tea, coffee, sugar & milk for staff use

ITAA 97 s8.1

$100.00

Telstra (Phones & Internet)

ITAA 97 s8.1

$1,818.18

Wages

ITAA 97 s8.1

$45,000.00

Total deduction

$158,372.73

Taxable Income

$178,820.78

Tax on Taxable Income @28.5%

$50,963.92

Tax offsets/Rebates/ Credits

Franking credit

ITAA 97 s205.15

-$4,397.14

Tax Payable

$46,566.78

Table 2: Taxable Income

(Source: Prepared by Author)

References

Bartleet, B.L., Bennett, D., Marsh, K., Power, A. and Sunderland, N., 2014. Reconciliation and transformation through mutual learning: Outlining a framework for arts-based service learning with Indigenous communities in Australia. International Journal of Education & the Arts, 15(8).

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

Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major Australian taxes. Treasury WP, 1.

Cumming, D. and Johan, S., 2016. Venture’s economic impact in Australia. The Journal of Technology Transfer, 41(1), pp.25-59.

Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible?. Journal of Business Ethics, 124(1), pp.173-184.

Eccleston, R. and Woolley, T., 2015. From Calgary to Canberra: Resource taxation and fiscal federalism in Canada and Australia. Publius: The Journal of Federalism, 45(2), pp.216-243.

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

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

Saad, N., Udin, N.M. and Derashid, C., 2014. Complexity of the Malaysian income tax act 1967: Readability assessment. Procedia-Social and Behavioral Sciences, 164, pp.606-612.

Silver, N., McGregor-Lowndes, M. and Tarr, J.A., 2016. Should Tax Incentives for Charitable Giving Stop at Australia's Borders. Sydney L. Rev., 38, p.85.

Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice. Routledge.

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.

Taylor, G. and Richardson, G., 2014. Incentives for corporate tax planning and reporting: Empirical evidence from Australia. Journal of Contemporary Accounting & Economics, 10(1), pp.1-15.

Tran-Nam, B., Evans, C. and Lignier, P., 2014. Personal taxpayer compliance costs: Recent evidence from Australia. Austl. Tax F., 29, p.137.

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