The Process of Withholding Tax - Case Study Example

Name Tutor Course Date Principles of Income Tax Law Case Study one Within the context of Australian income tax law in cases whereby an individual rents out residential property to others, income must be declared in the tax return. Hence tax deductions can be claimed within the related expenses. In this case according to the tax law when the owner of the property being leased decides to sell out the property the owner may be required to pay capital gains tax of the property being sold. Strata title permits and individual to engage in the process of ownership of part of a particular property. Strata title was introduced in 1961 in Australia in a bid to cope with the legal means of ownership of residential houses within an apartment blocks. The term strata title also relates to house-type strata title units in the context of Australia. In 1973 the Strata Titles Act and Regulations indicated the clarity in terms of individual strata plans stipulated under the 1961 Act. Thus the initial community title statute was ratified in 1989 through the efforts of NSW. There are various income tax implications on the strata scheme within the income tax law of Australia. Strata conversion therefore involves income tax, the process of withholding tax and non-mutual form of income that is regarded as a form of tax that is generally payable by the owner of the building (Auerbach, 36). In relation to the case study Suzette should be prepared for the income tax implications in relation to the transactions of the sale of the strata units of her apartments. In this case her accountant should be in a position to explain to her the various implications of strata titles in terms of income tax issues. Within the strata titles there are various income tax implications such as the process of withholding tax and a non-mutual form of tax. The strata titles ownership implies that even after the subdivision into strata or units the owner continues to pay income tax. Hence the payment of income tax is not transferred to the new owners of the units. This further implies that Suzette as the owner of the subdivided property through the strata scheme will continue to incur losses through the continued payment of income tax for the property already divided into several units owned by different individuals (Cook & OHare 26). Case Study Two In Australia within the context of income tax law most assets are predisposed to Capital Gains Tax in cases when an individual engages in the sale or disposal of the particular assets. Generally, these assets comprises of shares, material goods, business properties and personal assets. However some assets such as personal car and home are generally exempted from CGT. Hence CGT involves the type of tax that is generally imposed on capital gains sustained by individuals or corporations. Thus capital gains are considered as profits that are realized by an investor in cases of sale of particular asset at a much higher price than the purchase price of the asset. Therefore capital gains are regarded as profits from the sale of assets that are considered as capital. Hence capital gains are in most cases included in taxable income within the context of Australia (Cook et.al. 36-41). However the taxable income is generally calculated at a lower rate; for instance most of the capital gains are calculated at a rate of 15 percent. In addition married taxpayers filing the sale of properties jointly may be exempted from tax up to $500,000. In relation to Thang’s case study the contract of the sale of his investment property has various implications on the Capital Gains tax. Thang is considered to have bought the property in 2006 for $200,000 while paying a stamp duty of $10,000 at the time. The contract of the sale of his property was done 8 years later in 2014. Thang’s entered into a contract to sell the said property for $700,000. In this case the implications of the sale of the property involves the fact that Thang will be required to pay a higher tax income as a result of the sale of the property at a higher price that it was bought. In addition the property was being leased for the period that Thang owned the property. In the tax income policy, Thang will pay more in terms of CGT of the sale of the property. Year Transaction Amount ($) 2006 purchase 200,000 2014 sale 700,000 In addition being a businessman Thang was able to engage in the sale of his shares in Hong Pty Ltd. Thang had acquired 100% of the shares in Hong Pty Ltd in 2006 for $ 2 million. Eight years later in 2014 Thang made a decision to sell his shares in the company (Hong Pty Ltd) for $4 million. This implies that the sale of his shares in the company was made at a profit. Thus in this case Thang will also be required to pay a higher income tax for the sale of his shares at the company as the shares were sold at a higher price than the initial buying price. This therefore implies that Thang will pay more in terms of income tax for the sale of his shares at Hong Pty Ltd. In cases whereby an individual purchases or hold accomplished small business type of stock the taxation law involves the exclusion of a substantial part or the entire portion of any capital gain from the income that is generated by the small businesses. Hence within the income taxation policy there is an inclusion of a special form of tax break that is meant to assist qualified small corporations to raise capital through permitting long-standing, non-corporate stockholders within the original issue stock in order to cut the tax that is generally imposed on their profit. Therefore in order to take advantage of the tax exclusion and individual must be able to consolidate several small business stocks for a period of at least five years. Thus the excluded amount of tax will highly depend on the date of the acquisition of stock (Cook et.al. 48-51). In relation to the case study, Thang can take advantage of the small business enterprises so as to avoid paying a huge amount of tax in regards to his property, shares and business assets. This is especially the case with the tax payable on the sale of Hong Pty Ltd. The sale of the shares within the company incurred a lot of expenses in terms of payment of income tax. This was attributed to the fact that Hong Pty Ltd was done as a company in terms of the shares that were being held by Thang. In taking advantage of the small business enterprise approach in relation to the company Thang will be able to save a lot in terms of taxable income since small business enterprises in the context of income tax policy are generally excluded in part or a whole portion of the capital gain form the income that is created by the small business enterprises ((Hendershott & Yunhi 71-80). Case Study Three The Australian taxation system provides for some form of equity for families through permitting reductions for families in the calculation of income tax that is payable. Therefore under this system of taxation family tax were made available as a form of deductions, rebates or reduction of the tax that is mainly payable by family with marginal tax measures. In the past the law in regards to the family payment system involved the alternative method of provision of family assistance in terms of welfare system with the payment made directly to the family unit. This system was biased in terms of unfairness in the family payment system and education entry. Unfairness was experienced in the sense that there was disparity in terms of welfare system. In relation to the tax reforms that were introduced in 2000 the Family Assistance Office was created for the purposes of provision of Australian families with the government providing a wide range of choices in terms of payments (Lindsey, 61). In July 2000 the Howard government engaged in the process of introduction of Family Tax Benefit that was mainly designed to replace the tax and welfare benefits in relation to families’ payment system and education entry payment. The 2014 budget measures No. 2 also known as Bill 2014 involved in setting out measures in relation to family payment system and education entry payment. The implementations of the changes involve various payments of taxes to the Australian government. Hence from 1st January 2015 pause indexation was generated for a period of three years within the income of unrestricted areas and possessions value limits for student’s expenses with the incorporation of student income in terms of bank limits. In addition form 1st July 2017 pause indexation was imposed for a period of three years of the income and properties test in unrestricted areas in relation to all pensioners. The new law or Bill 2014 involves that from 20th September 2017 all pensions are indexed in regards to Consumer Price Index through the removal of indexation to the retiree and recipient Living Cost Index. In addition other changes to the budget reforms involve that as from 1st January 2015 the removal of relocation in terms of scholarship assistance for students engaging in the process of relocation within and between the major cities. For instance this reform may be applicable for student’s scholarship relation from one city to the other within the context of Australian Tax Income. Furthermore as from 1st January 2015 the cease of the education entry payment would be effected according to the budgetary bill reforms of 2014. The implementation of the various family payment reforms as per 1st July 2015 involves the limitation of the family tax benefit regarded as Part A large family complement to families with approximately four or more children. Hence the Family Tax Payment engaged in the process of elevating the tax threshold for families in Australia. Most families that were affected included the families caring for children less than 16 years of age and also students under 18 years of age. In addition families that had at least a single child under five years. Hence a means test involves the linkage to the income rates for the parenting form of payment that is mainly applicable to the income that is being earned by the spouse and the means of the family income (Cook et.al. 61-65). From the policy perspective within the Australian government the changes implemented in the Family Payment system and Education Entry Payment reforms or changes was considered in terms of desirability in relation to many factors. These factors include undesirability in terms of fairness, efficiency, equality and protection of government revenue. In this sense the reforms in the income tax and social security will assist in the process of reduction of incentives so as to work and save especially for families with low and moderate income levels. Hence the reforms will involve the reduction of income tax levels with the assistance for families being increased to substantial levels. The Australian higher education system has been faced with a lot of unfairness in terms of the accessibility of education. Hence the new reforms will provide fairness in terms of offering various forms of opportunity to students to engage in the process of attaining higher level of education. Thus the reforms will be fundamental in the promotion of fairness of entry and opportunity through the payment of the necessary fees by the government and also the implementation of various measures within the context of education budgetary reforms (Hendershott & Yunhi 102-121) In relation to efficiency, the educational system had proved to be inadequate in terms of provision for the students who had the interest of learning. In this case a lot of students who wished to further their studies had to rely heavily on their families so as to pursue their studies abroad. Therefore due to the changes the education system has experienced a lot of efficiency due to various laws or measures that were enacted so as to safeguard the interests of students studying in their own country as opposed to those students who opt to pursue their studies abroad. Hence the existing grant in the measures provided in the budget reforms will create a more efficient and effective education and family tax system. This is due to the fact that the reforms will be essential in improving the ongoing form of stability in regards to the family payment system. The budget reforms could not have been imposed at a better time since the efficiency will be able to be attained through the measures put into place in relation to the family payment system and education entry payment (Lindsey, 89). The implementations in terms of cease of education entry payment with effect from 1st January 2015 and family payment reforms with effect from 1st July 2015 involve the Family Assistance Act in relation to the New Tax system. This further involves the fact that every family and their children within the context of Australia have a right to equality and non-discrimination in terms of access to education and other welfare services. Therefore the main objective of this measure or change is the attainment of equality and non-discriminatory approach in terms of education and provision of welfare services to Australians. Within the context of Australia discrimination and inequality was mainly experienced in the education sector in terms of gender whereby the males were most favored than the females. The change in this measure will therefore ensure equality in terms of education in relation to gender. In addition discrimination especially among individuals living with disability will be tackled through this reform in the sense that individuals with disability will be considered in terms of equality and non-discrimination in the family payment system and education entry payment (Auerbach, 91-95). The role of the government involves the protection of its citizens from heavy forms of taxations of their income. Through the budget reforms (Bill 2014) and the changes made in regards to family payment system and education entry payment families will further experience low levels of payment of income tax. This will be essential as it will protect families within the lowest levels of income from payment of huge income tax of their meager form of incomes. This reduction in families in terms of payment of taxes will engage in family policies that is aimed at promoting healthy associations in protection of high risk children, changes in the income tax support system and reforms that will promote education in the Pensioner education Supplement within the education entry payment (DE, 6-11). Works Cited Auerbach, Alan J.,"Capital Gains Taxation and Tax Reforms," National Tax Journal, Vol.XLI [I, No. 3, September 1989. Lindsey, Lawrence B." Capital Gains Rates, Realizations, and Revenues," in Martin Feldstein, ed., The Effects of Taxation on Capital Accumulation, Chicago, University of Chicago Press, 1987. Hendershott, Patric H. and Yunhi Won, "The Long-Run Impact on Federal Tax Revenues and Capital Allocation of a Cut in the Capital Gains Tax, "Public Finance Quarterly, January 1991. Cook, Eric W. and John F. OHare, "Issues Relating to the Taxation of Capital Gains," National Tax Journal, Vol XL, No. 3, September 1987. Family Assistance Act 1999 Schedule 3 Explanatory Memorandum, Taxation Laws Amendment (Baby Bonus) Bill 2002, para 3.16– 3.17. ITAA97 s.61–420. Department of Education, School funding reform: Arrangements for 2013-14, 2012. Read More