Taxation Law: Set of Legislations - Essay Example

Taxation Law: Set of Legislations Every country has set of legislations. Fundamentally, the legislations seek to safeguard the interests of the citizenry. Economies are sustained by taxes got from the masses. The taxes are levied upon every eligible citizen or on any goods or services within an economic demography. The following discourse is on Australian taxation laws. The focus is a case study on Stephanie. Most of the countries fund their operations from revenues collected through taxation. This tax is imposed on various activities undertaken by the citizens of the state and among the category of this source of tax is the income tax. The case under study therefore seeks to discuss in details all the legal aspects of income tax and the taxation structure that affects this type of tax. To give a comprehensive understanding of this, hypothetical values have been provided to help in presenting a practical application of this type of income tax. Income Tax Principles Stephanie receives annual earnings of $25,000 with the Medical Registrations Board. Over the same period, her annual expenditures are; dry-cleaning- $200, uniform replacement cost- $800, traveling- $1000, books and study cost- $2000, and HECS-HELP debt $20,000 (Black, 2011). Besides, her annual expenditure on accommodation was estimated to be $15000, on condition that she does not lease out the house or stay with someone in the flats. The above financial conditions will attract income tax policy mechanisms according to the state taxation principles. Income tax is payable by individuals, entities and trustees annually based on financial position of the corporation or individual. However, the state through the tax regulatory authority outlines in principle that only income attract taxation.  Income tax = [Taxable Income * Tax Rate] - Tax Offsets The Tax Liability to be met by an individual is outlined by the formula: Tax Liability = income tax + Medicare levy + Medicare levy surcharge + HELP Repayment In the case of Stephanie, her taxable income is: $[25,000-(200+800+1,000+2,000) = $21,000] $21,000 - $15,000 = $6,000 Tax liability would be equivalent to; $6,000 + $20,000 = $26,000 Income tax has stipulations which give a guideline on how the taxation is carried out. In this case, the predicament of Stephanie presents a unique situation which needs careful deliberation. According to the Australian taxation law, the valued income tax influences the amount of tax that would be levied on any income earner. As noted in the case of Stephanie, it is arguable and evident that the amount of income tax that she earns is less when compared to the amount of tax that is supposed to be deducted. The uniqueness of this calls for careful deliberation based on legal taxation proceedings (Black, 2011). This is what the following part seeks to explore. Where personal incomes are less than the deductions, income tax liability is not payable on individual income and instead may be deferred to the next financial year. However, in her case, her incomes exceed the summation of deductions and thus attracting taxation within the same financial year. The sample principle applies to entities and corporate institutions in the event they make losses. Such losses imply tax loss which would be carried forward as deductions in the coming financial periods. Assessable income that attracts tax liability is classified as either ordinary or statutory incomes. Ordinary incomes are defined by the common law as sources of income either from salary, interest or rent. On the other hand, statutory incomes are incomes that are included in the assessable income tax checklist, ITAA97.the law classify the following under this category; annuities, work in progress, dividends, capital gains, and franking credits. In our hypothetical case study of Stephanie, it is clear that she has no statutory income as her income are specifically earnings generated at her work places with no other sources of income. However, it should also be noted that there are a couple of benefits that she receives and this may translate to earnings dependent on how one looks at them. These may include the housing which she gets for free yet when quantified it may translate to a significant amount, the case has noted this at $15,000. This will be discussed at some point in this analysis. The taxation principle applied in the above case is backed up by the legal tax structure explained below. The imposition of taxes on persons who are citizens of the state is executed at the level of the federal government. To the Australian economy, most of the taxes come from this. It should be noted that governments within the states have no authority in terms of taxation procedural practices. The trend in most societies globally is that taxation on personal income is pegged on the amount of tax a person earns. Consequently, a person having higher income would be subjected to higher tax. The same case is replicated in the Australian taxation system (Black, 2011). The only unique aspect in the Australian case is that personal income taxation is perceived to be at a personal level and not familial. Australian local governments too draw their funding from local taxations based on properties which are either commercial or even residential. Besides, this might also include rates imposed on land or property perceived to be of high value. The case of Stephanie presents such an instance. The taxes can also apply in the case where property is being transferred or ownership is changed. In the case of Stephanie, the property she lives in is liable to taxation since it is a commercial property. On the same aspect, the owners of the apartment would rightly charge their services for the accommodation offered. However, the agreement that they have in person overrides the taxation laws of the country. The ones liable to pay such a tax are the owners of the land and not the tenant as is Stephanie. One of the legal stipulations of the country is that there is a clause which bars the government from making alterations to existent taxation laws. This is defined by section 3 of the country’s acts. Consequently, the senate as well as the two houses is limited in terms of their power of taxation laws. There is an exemption which only is applicable to the senate on special circumstances. In such instances, it is the obligation of the senate to submit application for whatsoever amendments that is to be made. This is then put under evaluation by the two houses. In reference to the case of Stephanie, the point in focus in reference to taxation would be about possible fines or what are described as penalties. The litigation would be drawn on the airport fees that Stephanie is obliged to pay despite that there is a possibility of it being free. Given the nature of work of Stephanie, the question is whether she is liable to penalties in view of the exemptions she has had in terms of taxation. The case of Stephanie draws relevance to the interpretation of the Australian constitution in view of taxation powers as well as what would be referred to as vertical fiscal balance. Fundamentally, the stipulation defines the taxation power that is bestowed upon the government as well as the responsibility that the government has in terms of executing expenditures. The Australian government also has section 51 which outlines what possibilities or even eventualities that characterize the Australian government’s taxation system. In view of the annual income that Stephanie earns from her stint at the medical board, it would be imperative that that possible taxation implication on the income be carried out before any conclusive assertion is arrived at. This is where FBT comes into play. The rate imposed on an employer is 4.5 %. This would apply to the employer who include Stephanie’s employer. The Medicare levy would be at 1.5 %. This also applies to the gross value that is summed up by the employer (Black, 2011). The Australian tax body will seek audience with the tax payer, but unless otherwise stated, it is the tax payer responsibility, do the tax payer must submit their returns. If the employee has an option for salary packaging, this would be the best option in getting the benefits in lieu of cash salary. If there is any chance of getting FBT either at the time or in future, the liability must be packaged to include the value for which the company is liable of. There are a number of benefits that are FBT exempt, these include; Housing in inaccessible areas; living away from home allowances (partly exempt), employee relocation expenses, Superannuation (retirement/private pension contributions) and lesser benefits (lesser than $300) which is spent irregularly. In the course of the taxation process, there are listed items which are exempted from taxation due to the state of the goods as well as the likely impact that they would have on the economy (Black, 2011). In the case of Stephanie, the lists of exemptions still apply. The subsequent part highlights exempted items. The list of exempt work-related items currently includes: The first items would include the clothing which is for protective purposes in the course of discharge of duty. These include the aprons that Stephanie had to wear in the course of her duties. The other items exempted from taxations include what would be likened to tools of trade. These include her briefcases as well as computing accessories like laptop and other related items. Mobile phones as well as its accessories also fall under this category. A person's primary residence or main residence is where an individual practically lives, mostly a house or an apartment. An individual is expected to own only one dwelling place, though it is expected that at times a residence maybe shared between several people. A primal dwelling place is taken as the legal residence especially for tax considerations. In Stephanie’s case, she is hardly at her residence and does not pay for the residence as it has been provided as a special arrangement with the store owner. In this arrangement, the store owners who are not residents at the particular location have given Stephanie a place to stay. In turn, Stephanie is expected to sign for deliveries an activity she finds convenient as it does not interfere with her work or her schooling. However, for purposes of taxation Stephanie does not stand to gain from any benefits as she does not bear the burden of rent payment which would yield housing benefits. . All the same, Stephanie can put forward a case arguing that the duty he fill’s in on behalf of the owners can be quantified to represent her total outlay in regard to rent. Alternatively, she can work out the amount of rent using the total value of the house rent which is noted at $15,000 annually (Black, 2011). By determining an agreeable value of the house rent Stephanie stands to benefit from the housing benefits an allowable value in overall Australian tax computation. As may have been mentioned earlier, allowable expenses help in reducing the tax burden a factor which provides the tax payer with additional money to spend on alternate activities. A look at Stephanie’s work conditions reveal several benefits, these include the dry cleaning costs which are borne by the employer and the accruing travel points which are advantages of continuous work related travel. However, her employees do not consider this as taxable or allowable benefits (Black, 2011). For tax purposes, these may pass as they may be considered as fringe benefits. In Australia, fringe benefits are treated variably some may be included for taxation whereas others are exempted for tax purposes. In this case, these should be considered in income tax computation as they actually result in Stephanie profiting as she saves on visiting London or in her drycleaner expenses. Australia has since abolished inheritance tax, this came along with the abolishment of death duties. However, items attained through this way are still subjected to Capital Gains Tax. Once assets are passed over to an individual these should be specially noted for tax purposes particularly after 20 September 1985. Medicare Levy (ML) This is payable to the ATO in addition to Income Tax, It has its own schedule and it applies only to resident for tax purposes and applies to ALL income tax payers Medicare Levy Surcharge (MLS) This is payable to the ATO in addition to Income Tax, It also has a decision tree which also applies only to residents for tax purposes. In addition, it is also applicable to SOME tax payers and the rate is 1% over adjusted income. The adequate cover has hospital cover AND excess rules apply. Residency and source Resident taxpayers for tax purposes are taxed on income from sources both in and out of Australia and non-resident taxpayers are taxed only on Australian sources. Bibliography BLACK, C. (2011). Australian taxation law cases 2011: a guide to the leading cases for commerce and law students. Pyrmont, N.S.W., Thomson Reuters. Read More