Income Tax Assessment For Resident Taxpayers In 2016/17 Tax Year

Answers:

(a) As per the regulations of Income Tax Assessment Act 1997, any payment received under employment is taxable in the hands of receiver. However, if the salary or wages is subjected to PAYG tax that is directly deposited to ATO by the employer, then the amount shall be assessed by deducting PAYG tax (Richardson and Denniss 2014). Accordingly, in the present case, Weekly wages amounted to $78,000 received by Nick shall be assessed by deducting PAYG tax $19,000 that is ($78,000- $19,000) = $59,000.

(b) According to the taxation rulings of Federal Government of Australia, any amount of bonus received in monetary form is required to be assessed in taxable income of the taxpayer. As the amount of bonus consists of remuneration part, it is considered as an assessable income (Ato.gov.au 2017). Therefore, in the present case additional wages received by Nick as a Christmas bonus amounted to $6,000 shall be included in the assessable income. In addition, the amount has been paid by deducting PAYG tax hence, the net amount $6,000 will be included in the assessable income.

(c) Tax Rulings under the provision of Income Tax Assessment Act 1997 provides that if an employee or worker is reimbursed other than the use of private motor vehicle, then such allowances will be included in the PAYG summary of employee (Wilkins 2015). Accordingly, in the present situation, reimbursement of out- of- pocket travel costs amounted to $1,200 shall be included in his PAYG summary.

(d) Travel allowance is allowed by the employer is required to be assessed in the taxable income as per Australian Taxation System if employer had not deducted PAYG tax. However, in case the PAYG tax had been deducted from the amount of tax allowance, then the amount shall be included in the employees’ PAYG summary (Highfield and Warren 2015). In the present case, an amount of travel allowance $2,800 been paid to the employee without deducting PAYG tax hence, $2,800 will be included in the assessment of income of the employee.

(e) Under the provision of Australian Taxation Office, health insurance premium by private organizations is exempted from the Medicare Levy payment. Besides, the insurance cover must be excess of $500 if the taxpayer is single while the cover must be excess of $1,000 if the taxpayer has family (Ato.gov.au 2017). In the given case, Nick and his wife received health insurance premium by Lazarus valued to $2,750 which is in excess of $1,000 as Nick has family. Accordingly, Nick is entitled to claim exemption for the amount of premium or Nick is also entitled to claim deduction in terms of rebate.

(f) Contribution in Superannuation Fund on behalf of employee is paid by the employer which is considered as concessional contribution since the amount is contributed before tax charges. Accordingly, as per the taxation rules under Australian Taxation System on superannuation fund contribution made by the employer is required to be included in the assessable income and taxed at the rate of 15% (Ato.gov.au 2017). Therefore, in the present situation, contribution in the superannuation fund amounted to $10,000 paid by Lazarus on behalf of Nick would be included in the assessable income and taxed at the rate of 15% during the taxation year.

Nick Addison’s Employment by Lazarus Holdings Ltd

(g) According to the regulations of Australian Taxation Office, an assessee is entitled to claim the premium cost that is paid for the insurance received against the income lost by the taxpayer (Ato.gov.au 2017). Further, it is essential for the taxpayer to include the payment received under policy in the tax return at the end of the taxation year. In addition, the deduction can be claimed only for the income benefits and the receipts that are of capital nature (Ramli et al. 2015). Compensation received under a policy with respect to the premiums for life insurance or critical care is not entitled to be deducted from the assessed income. Accordingly, in the given situation, Chris, a freelance journalist received $50,000 from the policy of sickness and accident insurance for the purpose of loss on income. As the amount received as part of income benefits, the taxpayer is entitled to claim deduction for $50,000.

(h) Income Tax Assessment Act 1997 provides that the amount received from the health insurance policy is exempted from the taxable income of the taxpayer or the assessee is also entitled to get tax offset (Ato.gov.au 2017). However, taxpayer is entitled to get tax offset if the health insurance policy is based on private insurance and the income of the assessee is more than a certain amount of the premium amount. Further, in case the insurance policy is received for the operations and rehabilitation from a private source is exempted from the taxable income of the assessee (King and Case 2015). Accordingly, in the present case, Chris received an amount of $8,000 from the health insurance policy for the purpose of operations and rehabilitation that is covered under the criteria of exemption on insurance. Hence, $8,000 will not be included in the assessable income of the taxpayer.

(i) According to the provisions under Income Tax Assessment Act 1997, a taxpayer is entitled to claim deduction for the premium cost paid against the loss of income and such payment is to be disclosed under a tax return policy. On the contrary, a taxpayer is not entitled to entitled to claim deduction if the amount received under a policy does not provide income benefit or if the amount does not constitutes capital nature of income. In addition, an assessee is not entitled to claim deduction if the compensation has been received under a policy that compensates for physical injury which includes “trauma insurance premium” (Thow, Downs and Jan 2014). In the present situation, Chris received an amount of $70,000 under a policy of trauma insurance premium for his right foot, which is not covered in the criteria of entitled deduction for cost of insurance premium.

(j) As per the regulations of federal government under Australian Taxation System, an amount received towards long service leave that accrue after the taxation year 1993 are entitled to be taxed at the rate of marginal tax. In case, the amount for long service leave has been received in a lump sum amount or if the amount has been received on termination, then the amount will be assessed subject to deduction (Ato.gov.au 2017). In the present case, $5,400 has been received towards a payment for long service leave with respect to accrued leaves for several years from the organization where Chris worked as a part- time copywriter. The amount was paid by deducting $1,600 PAYG tax that has been withheld by the deductor. It can be said that Chris has received the amount for long service leave while he was under employment hence; $5,400 will be included in the taxable income while $1,600 PAYG tax will be included in the PAYG summary.

Additional Wages as Christmas Bonus

(k) Under the regulations of Australian Taxation System, any receipts as fees directly or indirectly under a profession is taxable in the hands of the taxpayer during the taxation year. On the other hand, amount received from Medicare is taxable in the hands of assessee since the amount refers to a part of professional income (Stavrunova and Yerokhin 2014). Therefore, the given case provides that Quentin conduct business as a general medical practitioner and received $79,000 in fees direct from patients together with the receipt from Medicare. As the income $79,000 received as an income from business and profession, it will be included in the assessable income of Quentin. In addition, amount received from Medicare $154,000 will be included in the taxable income of Quentin since the receipt has been derived under the medical profession of the assessee.

(l) As per the regulations of Australian Taxation System, claims received from insurance company against the loss of damage of the insured asset, is required to be included in the taxable income. However, the amount of GST charges is should be deducted from the taxable income if the taxpayer is registered for GST (Ato.gov.au 2017). Therefore, in the present case amounts received by Warren received certain amounts as an insurance claim from the insurance company that are included in the taxable income as follows:

	Amount $
Reimbursement of deductible truck repairs,	14,000
Demurrage (compensation for loss of income)	16,000
Proceeds for disposal of truck	75,000
Total amount to be included in the taxable income	105,000

Table 1: Taxable amount of insurance claim

(Source: Created by author)

As per the tax regulations under Income Tax Assessment Act 1997, amount received from insurance company as capital receipts shall not included in the assessable income of the assesee. In the present case, demurrage receipts represent compensation for loss of income, which refers to as revenue income therefore, the amount shall be included in the taxable income of Warren during the taxation year.

(m) Tax regulations under federal government of Australia, capital receipt as insurance claim is exempted from taxable income whereas insurance claim received in the nature of revenue shall be included in the taxable income. In addition, if the assessee is registered under GST, then the amount to be included in the taxable income shall be deducted by GST charges and the assessee will be entitled to claim GST credit (Ato.gov.au 2017). Accordingly, in the present situation amount received by Sandy from the insurance company shall be assessed as follows:

	Amount $
Loss of cash sales from robberies	21,000
Loss of Trading Stock	7,800
Reimbursement of deductible shop repairs	3,200
Reimbursement of Medical Expenses	2,000
Total amount to be included in the taxable income	34,000

Table 2: Taxable amount of insurance claim

(Source: Created by author)

Claim received towards loss of cash sales from robberies refers to the amount in the nature of revenue, therefore; it shall be included in the taxable income. Similarly, trading stock refers to the stock used for regular business operation hence the income received from insurance on loss of trading stock will be considered as revenue income.   

(n) As per the accounting system and taxation system in Australia, amount of “contra transaction” is accounted as the net amount adjusted between the amount of receipt and payment. However, if the contra amount of transaction is exactly same then each of the amounts is required to be included as payment as well as receipts (Ato.gov.au 2017). Further, while calculating the taxable income, each amount as receipt and payment shall be recognized separately as assessable income and deductible amount. Accordingly, in the present situation, value of contra transaction in the accounts of Troy $25,000 shall be recorded separately as assessable income and to be deducted as payment.

Reimbursement of Out-of-Pocket Travel Costs

(o) Provisions of Income Tax Assessment Act 1997 provide that any amount received by the assessee during the ordinary course of business shall be considered as taxable income. In addition, if the amount received from the clients is deposited in the bank account of owner’s partner then also the receipt will be considered as income of the assessee therefore, the amount shall be included in the taxable income (Ato.gov.au 2017). Accordingly, in the present case, Harrison derived business income amounted to $19,000 had been credited directly to the Commonwealth Bank in which his wife had a mortgage. Even though the amount was credited in the account of Harrison’s wife bank account, it will still be considered as Harrison’s income from business and shall be taxable in his books.

(p) Regulations of Australian Taxation System provide that the income received in cash is included in the assessable income of the taxpayer. On the contrary, if the income for business operation is derived by the taxpayer in kind, then the equivalent amount is required to be determined and considered as taxable income (Ato.gov.au 2017). Accordingly, in the present situation Karl conducted business a contract plumber who received airfare and accommodation in exchange of subcontracting job. Since, Karl received airfare and accommodation, which has been equivalent to the amount of $8,000 as against the cash fee, the equivalent amount would be included in the taxable income as per Income Tax Assessment Act 1997.

(q) As per the regulations of Australian Taxation System, payments received as gift is not considered as taxable income subject to certain exceptions. In order to claim consider an amount of gift under tax exemption, it is essential that the gift transfer has been made voluntarily as well as the material benefit does not arise to the donor for such transfer (Ato.gov.au 2017). Further, it is essential that the amount or value of gift should exceed $2 during the taxation year. In the present situation, Rob conducts a business as lawyer and drafted changes to Will for which he did not charge any fee. However, the client provided Rob a pair of cufflink valued $250. It can be said that the pair of cufflink provided by the client amounts to voluntary transfer and the amount also exceeds $2 hence the transfer can be considered as gift as per the provision of Australian Taxation System. Accordingly, the equivalent amount of the pair of cufflink will not be included in the taxable income.

(r) According to the Taxation Rulings 93/2 under Income Tax Assessment Act 1997, the benefit value from the redeemable airfare points of the frequent flyer is to be determined by using the fair market value. However, in case the amount has been considered by using arm’s length price then the lower fair market value of the redeemable points will be considered in the taxable income of the assessee (Ato.gov.au 2017). In the present case, Petros as a frequent flyer received 178,000 redeemable points that valued to an amount of $3,280 in the form of air tickets. Considering the regulations of ITAA 97, the Australian Taxation Office shall verify the amount by evaluating fair market value. If the evaluated amount reflects equivalent amount of $3,280 then such amount will be included in the taxable income of the assessee.

(s) According to the provision under Australian Taxation System, any amount received as cash subsidies and incentives from the government or state fund corporations falls under exempted income. However, if the subsidy and incentive has been received from any supplier or private organizations shall not be considered as exempted income. The amount shall be included in the assessable income of the assessee (Ato.gov.au 2017). In the given case, Len received cash subsidies and incentives amounted to $36,000 from a supplier for the purpose of selling carpet more than 2 kilometers. As the amount received from a supplier and not from the government hence, the amount $36,000 shall be included in the taxable income of Len.

(t) Australian Taxation Office provides that the receipt of incentives or subsidies shall be considered in the taxable income if the amount has been received from a supplier or any private organizations. However, if the subsidy or incentive has been received in kind then the equivalent amount shall be determined to consider fair market value and the amount shall be included in the taxable income (Ato.gov.au 2017). In the present case, Shelley received an espresso machine from a coffee supplier in the form of incentives, which was valued at $12,000. Apart from that, Shelley also received outdoor umbrellas and furniture as incentives that valued at $8,000 subject to the return of equipments on cessation of business. In view of the regulations of Australian Taxation Office, the value of incentives received from the supplier shall be included in the taxable income that is determined as follows:

	Amount $
Machine Incentive	12,000
Value of umbrella and furniture	8,000
Total amount to be included in the taxable income	20,000

Table 3: Taxable amount of subsidy and incentives

(Source: Created by author)

References

Ato.gov.au. 2017. Home page. [online] Available at: https://www.ato.gov.au [Accessed 1 Apr. 2017].

Highfield, R. and Warren, N., 2015. Does the Australian Higher Education Loan Program (HELP) undermine personal income tax integrity?. eJournal of Tax Research, 13(1), p.202.

King, D. and Case, C., 2015. AN INTERNATIONAL INDIVIDUAL INCOME TAX COMPARSION: THE UNITED STATES, AUSTRALIA, AND UNITED KINGDOM. EDITORIAL REVIEW BOARD, p.77.

Ramli, R., Palil, M.R., Hassan, N.S.A. and Mustapha, A.F., 2015. Compliance costs of goods and services tax (GST) among small and medium enterprises. Jurnal Pengurusan, 45, pp.1-15.

Richardson, D. and Denniss, R., 2014. Income and wealth inequality in Australia.

Stavrunova, O. and Yerokhin, O., 2014. Tax incentives and the demand for private health insurance. Journal of health economics, 34, pp.121-130.

Thow, A.M., Downs, S. and Jan, S., 2014. A systematic review of the effectiveness of food taxes and subsidies to improve diets: understanding the recent evidence. Nutrition reviews, 72(9), pp.551-565.

Wilkins, R., 2015. Measuring income inequality in Australia. Australian Economic Review, 48(1), pp.93-102.