Advanced Revenue Law, the Finances of Bob and Jenni - Case Study Example

Name: Task: Tutor: Date: Nursing For the tax payable for Bob and Jenni, the following arguments should be taken into consideration. For the superannuation account contributions, an effective sacrifice of salary arrangements are always taken as the contribution from the employer. These contributions are paid to the employee superannuation fund, which will not amount to fringe benefits. On the other hand, contribution for superannuation made to an associate like a wife, will amount to fringe benefits. On the same note, contributions towards a superannuation fund, which does not comply with the situation, will amount to a fringe benefit 1 The implications of an employee entering into arrangement of salary sacrifice, will lead to the following effects; the income tax paid by the employee will be on the salary and wages, that has been reduced and not the full amount. The fringe benefit tax on the non-cash items provided will be bored by the employer. In addition, the contribution made to the superannuation fund, will be deemed by the tax authorities to be employer’s liability, and not employee’s liability. Therefore, the tax of superannuation will be paid by the employer. However, the employer will deduct some of the salary paid to the employee, by some amount paid as tax from the superannuation account. In the case of assessable income, the employee will pay only tax on their reduced amount of salary. However, the salary that they will receive will amount to total salary, plus the amount of benefits. The employee contributions can be made out of the income after deduction of tax, to the benefit cost and subtract any fringe benefit reportable amount. This means that the liability on income tax must be less than before such arrangements were done. However, before someone enters into such an agreement, he or she should consider all the costs that are associated with it. This may include the sacrifice amount and any other obligations or charges that may evolve out of benefits being reported on the payment schedule. In case of any fringe benefit tax payable on the amount of benefits received, the employer is the one who will be responsible for such payments, although the salary of the employee may also be reduced by the employer over the same amount, according to the arrangements made earlier on the salary sacrifice2. For other employers such as the ones for public institutions, like promotion of health charities, public hospitals, and many others, they cannot pay fringe benefit tax on behalf of the employee unless benefits that an individual employee receives exceed the applicable threshold. In the situation where the contributions are made to a superannuation fund that comply with the requirements provided by law, the earning base of the employee may be reduced unless the arrangement on the salary sacrifice states otherwise. The earning base of the employee is the amount in which the contribution for superannuation, done by the employer is based on. For the case of fringed benefits, if an employee receives a total taxable value for fringe benefit for tax purposes of one financial year, is more than two thousand dollars; the taxable amount of such benefits, will be recorded on the payment schedule of the income of the corresponding year. The amount of fringe benefits found on the payment schedule is commonly called reportable benefits. This happens when an employee receives several payment summaries during the year of the tax return. However, despite the fact that such amounts are shown on the tax return schedule, they are not included in the assessed amount for tax purposes, but the total will be used in the calculation of the employee entitlements, to certain government benefits, the employees obligations on the child support, the financial or loan repayment, the tax offset on the age maturity of the employee, contribution to the employee offsets, the superannuation contributions and personal super contribution deductions. In the case of Bob and Jenni, the taxable income will be as follows: The following is the taxable income rate Taxable income Rate for every taxable Pay as you earn rate In dollars Income of $1 in cents Less than 14000 10.5% 12.2 Between 14001-48000 17.5% 19.20 Between 48001-70000 30% 31.70 Over70001 33% 46.70 For the amounts, which are not specified, the tax rate will be 45 percent for every dollar of the amounts taxable or the taxable income. Bobs taxable income = $68000. Subjecting this to the above rate, it will be 14000 *10.5 % =$1470 (48000 – 14000) * 17.5 % = $5950 (68000 – 48000) * 30 % = $6000 Total tax payable = (1470 + 5950 +6000) = 13,420 dollars. On the other hand, the table income for Jenni = 172,000 dollars. The taxable income is as follows: 14000 *10.5 % = $1470 (48000 – 14000) * 17.5 % = $5950 (70000 – 48000) *30 % = $6600 (172000 – 70000) * 33 % =$33660 Therefore the total dollars paid by Jenni as tax is calculated as follows; (33660 + 6600 + 5950 + 1470) = $47,680 There are various types of benefits that Bob has sacrificed. Most benefits form part of the employer’s remuneration, which could otherwise be paid with the wages and salaries. These benefits provided in the arrangements of salary sacrifice include; superannuation, exempt benefits and fringe benefits. The benefits that both Bob and Jenni will be excepted from tax are the superannuation benefits, which are not included in the taxable income, and also the benefit associated with no cash items, like for this case, the transfer of Jenni’s 138000 dollars of share to their superannuation fund account, and also the capital gains involved in the transfer of the same shares. In general terms, a person between the age of eighteen and sixty nine years is eligible to contribute for inclusive superannuation, at an amount of 450 dollars or more before it is subjected to taxation, for wages and salaries paid monthly. This has no consideration, whether the employee is working for part time, full time or casual basis. All the employees, who are under the age of eighteen, are also entitled to this contribution, and they must meet all these conditions, and must work for not less than thirty hours per week in order to qualify for the superannuation guarantee. The superannuation contribution should also include the ones for contractors, especially if the contract is principally or majorly for their work and the employees who have temporary residence in the country3. You also have to pay super for contractors, if the contract is wholly or principally for their labor, and for employees who are temporary residents of country. From the detail given for Bob working status, he is only working for four days a week on a casual basis, as he has already retired. Therefore, bob is entitled to superannuation contribution like any other employee. The individuals, who are on self-employment basis, are not a must to set money aside for contributions towards superannuation. Such individuals can only get some benefits provided by superannuation laws. A self employed individual like Bob can have their income taxes being deducted from super contributions and non-concessional superannuation contribution. Self employed persons also can acquire benefits from the contribution schemes, and benefit also from exemptions of small production retirements and other general incentives, related to retirements. For such persons to make their supper contributions to be tax deductible they need to do the following; Bob should be self employed fully as a sole proprietor or in partnership, earn fraction of their proceeds as a worker, but should be less than ten percent of their all proceeds from the work as a worker4. The ten percent that an employee gets as a test will apply to the above even if the owner has paid guarantee on superannuation to the employee income schedule. If the individual has registered his business as a company for instance, he should be able to contribute superannuation to himself and other eligible employees of the company. Withdrawal of the superannuation account for the people who are aged sixty years and above will not attract any tax. It is tax free. This provision was effected from the year 2007, 1st July. It is tax free regardless of whether the contribution was removed, as pension or in lump sum. Regardless of whether someone is over or under the age of sixty years, cash withdrawal of contribution or pension, will negatively affect the eligibility for tax benefits and exemptions. If Bob will use such withdrawal for investment purposes in Fiji, then the earnings from the investment are the ones to be taxed at the rate of 15% for taxable earnings. When Janni turns fifty nine years in 2013, she will make no difference on the contributions that she has been making. The retirement age is sixty years and that is the age which can make the difference in terms of superannuation contribution5. For the income tax purposes, the long service leave and the unused annual leave, paid to the worker upon the retirement or termination of the employer’s services are subject to taxation. These payments include loading bonus or other additional payments in relation to that particular leave. These payments, which are subject to tax purposes, also include unused sick leave payments, which is also part of the termination of service payments. The finances of both Bob and Jenni can provide a typical arrangement, which will ensure that all their benefits and offsets are not missing in the schedule. Bob and Jenni should consider an arrangement, which is tax effective, for this they should check the issue of a product ruling. If product ruling is included in the arrangements, it shows the certainty of the tax consequences, provided that the arrangements have been put in place exactly the way it has been provided in the ruling. It is an important thing to make sure that product ruling is legitimate. The arrangement should be current and updated to make sure that their finances are well organized and tax effective. The tax benefits contained in the arrangement should also be consistent with what is provided in the product ruling to enable its application to be easy. Work Cited Henderson, Sam. Financial Planning Diy Guide: Everything You Need to Successfully Manage Your Money and Invest for Wealth Creation. Hoboken: Henderson Wiley & Sons, 2011. Read More