Taxation Principles Provided under the Australian Income Tax Act - Assignment Example

Student’s Name Instructor’s Name Course Date When it comes to assessment of taxable income, many factors relating to taxation must be fully incorporated. The amount to be treated as taxable income should include annual salary and all taxable benefits. The taxation principles provided under the Australian Income Tax Act provides the way forward on how to tax employment and non-employment benefits. Therefore, arriving at the taxable income, we need to assess all employment benefits in relation to income tax. This must be done in relation to Income Tax of 1986 and other subsequent Acts that have been put in place to meet the diversity of taxation. This is based on the fact that with time, commerce has undergone tremendous growth and modification. As the means of trade continue changing, necessary improvements have also been undertaken on the Income Tax in Act order to meet these needs. To start with is the superannuation contribution. The 26 year old Jackie Jacob made a personal contribution of $20,000 for the year ended. The concession cap that is set in relation to personal contribution is $25000 per member for a year. This is designed for taxpayers who are aged below 50 years. In this regard, Jackie Jacob automatically qualifies. When it comes to tax deduction, Jackie failed to inform his super fund in time. According to rules governing super contributions, the timing is very important if one is to be considered for tax deduction. Since at lodgement the trustee had not received a section 290-170 notice, Jackie does not qualify for tax deduction. Therefore, Jackie will be levied tax upon the whole amount contributed. On the taxation of the $1000 contributed by his employer, its taxation is depended on whether the TFN has been quoted or not. If the TFN has not been quoted it automatically attracts a higher taxation rate. In this regard, the amount paid in by the employer qualifies for taxation and is therefore added to assessable income. In dealing with the franked and un-franked dividends, they are both taxed. Nevertheless, the taxation rates charged differs. Put in mind that the issue of franking in Australia is aimed at minimizing the tragedy of double taxation. In this regard, the franked dividends include a portion of tax already paid in by the company. Therefore, Jackie will pay less tax on the component of dividend that was franked. On the other hand, the un-franked dividends will attract a full tax. Therefore, the 14000 worth of dividends that was franked, the pre-tax value will have to be calculated. From this point, it will be now easier to assess the amount that had to be paid and the subsequent tax that the taxpayer is supposed to pay. In this regard, the taxpayer will end up paying less on these franked dividends. In contrary, the taxpayer will be required to pay the full amount due on the un-franked dividends. Co-contribution by the government is made as an encouragement to taxpayers to continue making contributions into the super fund. This is aimed at boosting individual’s future savings. This contribution does not attract any tax when is made into the super fund. At the same time, the amount is not treated as income when filing tax returns. According to the Australian tax office, a member does not need to apply for such contribution. One qualifies automatically as long as they are making personal super contribution. This amount is usually preserved in super fund until when other preserved amounts are accessed. At the end of it, this contribution does not have an impact on the assessable tax. The $24480 in respect to revaluation of investment does not attract any tax. The revaluation undertaken in this sense cannot be considered for taxation on various grounds. First, the mere revaluation of capital investment does not involve transfer of money. It is only at a date when the shares have been sold that a consideration can be made to find out whether capital gain or loss was realized. Prior to the sale of investment, no tax can be attached to such increase in value of shares. The basic explanation for this is founded on the fact that shares are prone to change in price basically on a daily basis. Therefore, a revaluation can never be used to charge tax on shares. The dividends earned from foreign investments attract withholding tax. The withholding tax that has already been charged is the final tax payable by the taxpayer. The amount received as foreign dividends are therefore tax exempt. Any tax paid in the oversee country is done so according to the taxation policies reigning in that country. Thewithholding tax charged is the only tax that the taxpayer is expected to pay. Therefore, the $14000 received as foreign dividend will not attract any tax from the Australian tax department. The audit fee and late lodgement fee are expenses that are not considered when calculating taxable income. The expenses that are supposed to be considered when calculating taxable income are those that are directly incurred in the generation of income. Those that cannot be specifically connected to the generation of the income during the period under consideration are not deductible against income. In calculating capital gains, the net profit is arrived at by subtracting the purchase price from the saleprice. The difference is not supposed to be between the book value and the selling price. In the calculations provided in the investment income chapter, the amount was subtracted from the book value. With this regard, the property was acquired at $16000 and sold at $13000. That means that the capital loss realized from the sale of the property was $3000 as opposed to the stated capital gain of $2000. Same applies to other items which have been calculated under investment. The amount used in all cases is the book value instead of the historical value of these investments. Therefore to correct this, the following adjustments have been made under investment as follows: sale of land: selling price S300,000.00 cost price S150,000.00 S150,000.00 sale of shares: selling price S36,000.00 cost price S34,000.00 $2,000 sale of ABC property: selling price S13,000.00 cost price S16,000.00 -$3,000 deferred tax S1,900.00 $150,900 Calculation of taxable income Personal contribution $20,000 Employer contribution $1,000 Dividends received $22,000 Capital gains $150,900 Capital losses -$48,000 Taxable income $145,000 Question 2 Fringe Benefits Harbour cruise for 12 employees $15,000 Food and beverage package $4,200 Gym membership $247,500 Reimbursement for the desk $1,100 Reimbursement for the laptop $3,300 Total fringe benefits $271,100 Calculating GST Amount GST Harbour cruise for all people $25,000 $2,500 Food and beverage $7,000 $700 Gym membership $247,500 $24,750 Reimbursement for the desk $1,100 $110 Reimbursement for the laptop $3,300 $330 total $283,900 32,350 Fringe benefits refer to payments made by the employer for the employee whose basis is the employment contract that brings the two parties together. The fringe benefits include payments apart from the salary that the employee is paid. In calculating fringe benefits, attention should be paid to items to be considered. For instance, when the same benefit is extended to relatives of the employee, it ceases to be a fringe benefit. For example in this question, the party attracted 20 people from which 12 were employees. Therefore when calculating fringe benefits, only the amount paid for the employees is considered fringe benefit. The other amount is ignored in relation to fringe benefits extended to employees. Besides, it is also worth noting that what is considered fringe benefits must have been paid by the employer. Therefore, the fact that the amount must come from the employer is a subject matter. In the case where the contribution is made by the employee themselves, this should not be considered as fringe benefits. This explains the reason the contribution made by individuals was ignored. This is a private contribution that has no effect both on the fringe benefits and the GST payable. It has been highlighted that ABC did not apply for the election for the 50/50 and therefore the GST on fringe benefit under entertainment would have to be paid in full. The 50/50 policy would have allowed the organization to settle only 50% of the GST payable on the entertainment allowance. Therefore, this implies that the organization is not eligible to receive any deduction in relation to the amount of GST tax to be paid on fringe benefits. On the issue of reimbursements, the amount is also considered under the fringe benefits scheme. The items which the CEO acquired of which he was reimbursed fully qualify to be classified under the fringe benefits. At the same time, the amount also fully qualifies for the GST to be paid. Of the items that qualify for GST, they are charged at 10% on the gross amount. Since it was highlighted that the amount given is inclusive of GST, then that means that GST is directly calculated from the gross amount using the given rate. Works cited Brown, Eric C. Business-income taxation and investment incentives:Income, employment and public policy: Essay in honour of Alvin H. Hansen.New York: Norton, 1948. Print Read More