Personal Taxpayer Compliance Costs: Calculation Of Taxable Income

Types of Income

Discuss about the Personal Taxpayer Compliance Costs.

In this case, various information pertaining to Jane Brown has been provided. The issue is to calculate the net tax payable or refundable during the current tax year. The tax is calculated by applying the various provisions of the relevant law. 

The section 4-1 of the Income Tax Assessment Act provides that the every individual, company and other entities is required to pay income tax.  The section 4-10 of the Income Tax Assessment Act provides that tax payable is calculated by applying the tax rate with the taxable income (Saad et al. 2014). The section 4-15 of the Income Tax Assessment Act 1997 provides that taxable income is calculate by subtracting allowable deduction from the assessable income. The assessable income of a taxpayer is classified into ordinary income and statutory income. The section 6-5 of the Income Tax Assessment Act provides that income according to the ordinary concept is known as the ordinary income (Saad 2014). The income other than ordinary income is known as the statutory income as per section 6-10 of the Income Tax Assessment Act. In both the section 6-5 and 6-10 of act it is provided that in case of resident taxpayer income received from all the sources are taxable and in case of non-resident the income received from Australia is taxable.  Therefore, it can be said that determination of residential status of the taxpayer is essential before calculating the taxable income. The section 6-1 of the Income Tax Assessment Act 1936 provides four rules that should be applied for determining the residential status of the taxpayer. However, in this case there is insufficient information so it is assumed that the Jane Brown is a resident of Australia for the purpose of tax (Birt et al. 2014).  

The division 6 of the Income Tax Assessment Act 1936 deals with the trust income. The net income of the trust is worked out on the assumption that the trustee is resident. The net income of the family trust can be distributed to the beneficiary in any way it deems fit. The act also provides that a trust is not required to pay income tax on the amount distributed (Binning and Young 2015). The trust is only required to pay tax on the undistributed income. The beneficiary is required to pay tax on the amount distributed by the family trust. It should be noted that it is not a special income so it should be included in the assessable income and taxed at marginal rate. In this case, Jane has received an amount of $2000 from the family. Therefore based on the discussion it can be said that the receipt from the trust should be in the assessable income (Tran-Nam et al. 2014).

Allowable Deductions

The section 44 of the Income Tax Assessment Act 1936 states that the assessable income of the resident shareholder of the company shall include dividend. The dividend are the profit distributed by the company earned from any source. The dividend received is also an ordinary income as per section 6-5 of the Income Tax Assessment Act 1997. In this case, the fully franked dividend of Jane should be included in the assessable income. In this case, as the information provided is insufficient so it is assumed that $20000 is the gross dividend (Taylor and Richardson 2013).

The salary is an assessable income under section 6-5 of the Income Tax Assessment 1997. Therefore, the salary amount received by Jane should be included in the assessable income.  The salary that should be included is the gross salary therefore the PAYG should be added with the net salary. The commissioner based on the section 15-25 and 15-30 of the Tax Administration Act 1953 develops the withholding schedule (Brown et al. 2015).

The interest is an ordinary income as per section 6-5 of the ITAA 1997; therefore, the interest income of $475 should be included in the assessable income.

The income from investment should be included in the assessable income as per section 6-5 of the ITAA 1997. In this case, the income that is received from rental property should be included in the assessable income. The section 8-1 of the income Tax Assessment act states that the taxpayer can deduct from the assessable income any outgoing that is necessary fort earning then assessable income. Hence, in this case the expenses that are incurred for the income from investment property should be deducted. The benet amount should be included in the assessable income (Farrell 2016). 

The section 102-5 of the Income Tax Assessment Act 1997 states that the assessable income should include the net capital gain during the year. In this case, as the shares were acquired on 2009 so the discount method is applied. An individual can make the section 115-10 of the ITAA 1997 states that discount capital gain. The insurance premium paid for income protection is deductible as the amount received is taxable (Kucukvar et al. 2014).

Based on the above discussion the taxable income is calculated. The calculation shows that the tax payable is $34715. The calculation is given below.

Calculation of Taxable income of Jane for the year 2015-16
Particulars	References	Amount	Amount	Figure	Authority
Income received from Trust	ITAA 36 Division 36		$20,000.00
Dividend Income
Fully Franked (Net)		$14,000.00
franking Credit		$6,000.00
Gross Dividend	ITAA 36 s44 & ITAA 97 s6.5		$20,000.00
Salary Income	ITAA 97 s6.5		$79,000.00
Interest income	ITAA 97 s6.5		$475.00
Rent Income	ITAA 97 s6.5		$35,000.00
Capital gain from sale of shares
Sales proceed		$3,500.00
Less:
Cost of Acquisition		$800.00
Gross capital Gain		$2,700.00
Less:
Discount @ 50%		$1,350.00
Net Capital Gain	ITAA 97 s102.5 & s115.10		$1,350.00
Assessable Income			$155,825.00
Allowable Deductions
Repair	ITAA 97 s8.1	$2,000.00
Interest on Mortgage	ITAA 97 s8.1	$15,000.00
rates	ITAA 97 s8.1	$2,500.00
Insurance	ITAA 97 s8.1	$500.00
investment advise	ITAA 97 s8.1	$250.00
Insurance for Income Protection	ITAA 97 s8-1	$1,000.00
Total deduction			$21,250.00
Taxable income			$134,575.00
Tax on taxable income ($17547+.37(134575-80000))			$37,739.75
Medicare Levy			$2,691.50
Medicare levy surcharge			1682.19
Gross Tax Payable			42113.44
Tax offsets/Rebates/ Credits
Special Zone Rebate	ITAA 36 s79A		1173.00
franking credit	ITAA 97 s205.15		-$8,571.43
Tax Payable			$34,715.01
Less:
PAYG			$(18828.00)
Net tax Payable			15887.01
Disregarded Items
Type
Help debt			$20000

Table 1: calculation of Taxable income

(Source: Created by Author)

Calculation of Taxable Income

In this case, the Green Pty Ltd is a resident company the issue here is to ascertain the taxable income and calculate the taxable income.

The Income tax Assessment Act provides that the business income are taxable. The section 8-1 of the Income Tax Assessment Act 1997 states that expenses that are made for earning assessable income are allowed as deduction. The section 27-15 of the Income Tax Assessment Act 1997 provides that the input tax credit can be deducted as loss or outgoing under this act. Hence, it can be said that the company will have to adjust expenses to GST the element (Richardson et al. 2013). It is assumed that the dividend amount provided is gross. In general, the company tax rate is 30%. However, for small business company tax rate is 28.5%. The business is said to be small if the aggregate turnover from the business is less than 2 million (Griffiths 2015). In the given case, the turnover of the Green Pty Ltd is less than the 2 million so 28.5% rate will apply. The calculation is given below:

Computation of the Taxable Income and Tax Payable for Green Pty Ltd
Particular	Reference	Amount	Amount	Figure	Authority
Sales	ITAA 97 s6.5		$313,636.36
Dividend fully franked		$10,260.00
Add: franking Credit		$4,397.14
Gross Dividend	ITAA 36 s44 & ITAA 97 s6.5		$14,657.14
Interest	ITAA 97 s6.5		$900.00
Compensation from client	ITAA 97 s6.5		$4,000.00
Net Capital gain	ITAA 97 s102.5 & s115.10		$4,000.00
Assessable Income			$337,193.51
Allowable Deduction
Advertising	ITAA 97 s8.1	$909.09
Bad debts	ITAA 97 s8.1	$900.00
Bank Charges	ITAA 97 s8.1	$150.00
Capital expenditure (qualifies for immediate deduction)	ITAA 97 s8.1	$2,727.27
Cost of sales	ITAA 97 s8.1	$54,545.45
Sub-contractor expenses	ITAA 97 s8.1	$20,909.09
Depreciation expenses	ITAA 97 s8.1	$5,500.00
Electricity	ITAA 97 s8.1	$800.00
Entertainment	ITAA 97 s8.1	$1,818.18
Environmental protection (disposal of chemicals)	ITAA 97 s8.1	$600.00
Fines (speeding and parking tickets)	ITAA 97 s8.1	$500.00
Insurance	ITAA 97 s8.1	$600.00
Interest expenses within Australia	ITAA 97 s8.1	$1,200.00
Lease expenses within Australia	ITAA 97 s8.1	$4,000.00
Motor Vehicle 3rd Party insurance	ITAA 97 s8.1	$550.00
Motor Vehicle expenses (petrol & maintenance)	ITAA 97 s8.1	$3,636.36
Motor Vehicle Registration	ITAA 97 s8.1	$1,200.00
Rent expenses	ITAA 97 s8.1	$10,727.27
Stationery & Office supplies	ITAA 97 s8.1	$181.82
Tea, coffee, sugar & milk for staff use	ITAA 97 s8.1	$100.00
Telstra (Phones & Internet)	ITAA 97 s8.1	$1,818.18
Wages	ITAA 97 s8.1	$45,000.00
Total deduction			$158,372.73
Taxable Income			$178,820.78
Tax on Taxable Income @28.5%			$50,963.92
Tax offsets/Rebates/ Credits
Franking credit	ITAA 97 s205.15		-$4,397.14
Tax Payable			$46,566.78

Table 2: Taxable Income

(Source: Created by Author)

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