David and Jennifers Eligibility to Education Tax - Case Study Example

Individual Financial Analysis Name: Lecturer: Course name: Course code: Date: Australian state and federal parliaments imposes tax in various kinds of revenues earned. Federal revenues include income raised customs and excise duties, 90% of goods and services tax and fringe benefit. The state also collects revenue from payroll tax, stamp duty, motor vehicle tax, gambling tax, and land tax. In the case of David and Jennifer, Australian Tax Office recognizes them as couples and they are individually taxed as husband and wife. The family will be taxed on 50/50 basis on the jointly owned investments units. The total annual income of $10,044 will be assessed separately on David and Jennifer on 50/50% basis[Pet06]. The agent’s fee of 7% is an allowable deduction expense to both the couples which will be taxed on the agent. Being the Australian residents, David enjoy certain tax exemptions on Federal income tax which are levied on his assessable income of the business. This is assessed jointly with his other income less any allowable deductions. Assessable business income is the income that the business generates; therefore it does not include David’s GST payable on sales or even GST credits. Allowable expenses such as travelling expenses in the course of duty will be allowed. The couples gross income from the their personal services such as the business, rental income and the capital gains arising from the appreciation of the unit are taxed accordingly[Dou06]. According to the CGT act an asset held in a period more than one year, 50% of the net capital is assessed. Their total business assessable income for David will be subject to capital expenditure claims used incurred in earning income. ATO recognizes the deductions made on the individual business income. However, David should limit his tax liability by claiming capital allowance on items such as the IT business equipment and capital expenses on the rental units Australian Tax Office (ATO) act recognize income from any activity of the business carried on the reason of profit making therefore the business taxation is controls the marginal returns for purposes of the growth of the business. In the case of the David business activities, Tax File Number (TFN) enhances tax operations by the Australian Tax Office (ATO). David and Jennifer’s eligibility to education tax Education tax refund assists qualified families and also independent students to meet their obligation of primary school and secondary school education cost. The couple incurs a total cost of $65000 per year for their three children in private schools[Jam07]. They can claim education tax refund for expenses they incur in educating their children. The family can claim up to 50% of the eligible expenses incurred in education of children in primary and secondary schools. This is because payment of school fees for the children denied them receiving family tax benefit part A for those children. The maximum amount they can claim is 50% of eligible school fees expenses of up to: $750 for their child in primary school, that is $375 of refund; $3000 for their two eligible children in secondary school, that is $1500 of refund. The excess amounts will be claimed in the subsequent years because they are eligible for refund. Home ownership personal loan interest The personal home loan interest is not an allowable deduction. The family incurs a monthly interest of $3301 Jennifer’s superannuation The obligatory superannuation contributions are considered assessable income of the fund which is subjected to the 15 % tax. This acknowledgment stipulates that the distinct income in the form of superannuation is assessed according to the Australian Tax Office act. $ 167,000 annual superannuation is included in the total Jennifer’s assessable income Salary Sacrifice Salary sacrifice means that an individual takes noncash items as opposed in the cash remuneration office[Nex07]. David’s salary sacrifice is compounded to noncash benefits that can be effortlessly slipped through the tax system. The act was distorted to account for the benefits enacted by tax system. The salary sacrifices donations to the super fund form the concessional contributions will be included in the total assessable income and taxed together at rate 15%. In case where the contributions of the couples was more than the super fund the contributions will have added together and divided at a rate of 50/50 and taxed to each of them. Salary sacrifices that the couple is taking reduce their total assessable income. The amount sacrificed from the total salary is not the assessable income for the purposes of taxation[Edw12]. This implies that it is not subjected to pay as you go withholding tax which is final tax. Self managed super fund Self managed super funds are subject to income tax but it obtains concessional treatment only if they are complying funds. David’s self managed superfund is taxable at a general rate of 15%. David enjoys an advantage because his self managed superfund is complying. A non-complying self managed superfund is taxed at the rate of 45%. The tax systems to the David business activities might be suppressed by tax on the growth and advancement since the business income generated from the activities which is waived as a result of the taxation acts[Jam07]. Business activities marginal income that could have used for expanding the business will however suffer the withholding tax compulsory thus enlighten the business process. The business defines a basic income that is deemed with the deal of the saving percentage of their earning for taxes purposes. The business handle taxes for the amount earned and they withhold the necessary advancement. The couple should priories their needs in terms of urgency. They should set goals which are written down and reviewed regularly so that it gives them guide on what to achieve because goals determines the behavior of someone. Their lifestyle should not go beyond their financial goals. The couple should set goals so that they can change their habits, take control of their financial situation hence enabling them to achieve what they want. The couple should set goals which are realistic, specific, attainable, and measurable and time bound to enable them achieve financial stability[Edw12]. The couple earns considerably good amount of money, what they need to do is to set priorities and cut down or do away completely with unnecessary costs. The couple should introduce an appropriate attainable budget. A budget will guide their earnings on viable investments, safe wisely. Budget will control their expenditure. The couple should take control of their finances and try as much as possible to spend less than what they earn[Ron07]. They should come up with the total estimates of their monthly earnings, sum up all their monthly expenditures categorizing them into either living expenses or bills, and compare the results and update their budget for the month. Living expenses are actuality while bills are known to be non-discretionary. The couple should set viable targets and control their spending habits. To enable budget efficiently, they should create a financial structure which contains income account livelihood account, mortgage account, bills account and entertainment account. The couple should familiarize themselves with sound investments. This will enable them in making informed investments decisions which are viable[Bri09]. They should know how to assess their interest obligations, taxes, have an understanding of their investment options, how to manage their debt liabilities effectively, they should have an understanding of superannuation and implement a viable investment plan. The couple should engage experts such as tax experts, accountants or a financial planner to assist them manage their finances effectively. They need to focus on accumulating their wealth and should exercise a lot of patience, discipline and determination. They need to start by paying off credit card and personal debt obligations first. They also have to have a good understanding of what they want to invest in. they assess different parameters of risks such as the market risks, risks involved with liquidity, credit risk, interest rate risk, gearing risk, risks involved with the laws governing investments among other risks that are subjected to that investment. If they choose to finance their investment using debt then they must consider their credit worthiness and the costs involved with debt financing. Reference List Pet06: , (Walton 2006), Dou06: , (Mills. 2006), Jam07: , (Jamison 2007), Nex07: , (Earl 2007), Edw12: , (Clarke 2012), Ron07: , (Cecilia 2007), Bri09: , (Briggs 2009), Read More