Preparing Non-Complex Income Tax Returns For Individuals – Legislative Requirements And Client Data

Legislative Requirements

There are various declarations and legislative requirements needed in the preparation of the tax and tax return documentations of a client. On the behalf of the client, tax preparers can lodge the documents electronically or online, as allowed by the tax law, and the government might be able to pay refunds to the tax preparer by the means of electronic funds transfer, if the same is authorized by the client (Australian Government, ATO, 2018). In order to protect the taxpayers and the tax agents/preparers, administrative legislation safeguards have been designed as well. For instance, before a tax preparer transmits the tax return of a client, a declaration must be signed by the taxpayer. In order to meet such obligations, the tax agents might get prevented from transmitting a form to the government, with the help of software, unless it has been recorded in the agent’s system mentioning that the completion of the required declaration. The electronic declaration would consist of a number of parts that would include the Taxpayer’s declaration, EFT declaration and the Tax agent certification. The taxpayers and the registered tax preparers must exercise proper care while preparing the tax return documentation and all the appropriate records must be kept by them for particular time periods (Australian Government, ATO, 2018). The penalties and charges applicable on incorrect statements in the documentation are equally applicable to the statements of electronic documents.

The taxpayer declaration must be provided by the client or the taxpayer to the tax agent, which would be written and signed document which would declare that all the information provided by the client to the tax agent is correct and true and the tax agents are authorized for forwarding the documents to the Government. No documents must be transmitted by the tax agents to the Government before the making of the declaration. The declaration can be given by the client to the agent in person, or by fax or post. The declaration must be kept with the tax payer for five years after it is prepared. Making a misleading or false statement to the Government is a punishable offence. The EFT declaration is a reconciliation report which shows the details of the refunds of electronic funds transfer which is sent by the Government to the trust accounts of the agents (Australian Government, ATO, 2018). Finally, a tax agent declaration along with the electronic signature of the tax agents, must be contained in all the activity statements, FBT and tax returns, and other forms and services that are lodged electronically by the tax agents on the behalf of the clients. This declaration is known as the Tax agent certificate (Australian Government, ATO, 2018).

Client data required for tax calculation

An individual tax return checklist have been provided, which would include all the required data of the client needed for the preparation of the client’s tax information. The name of the client is Mr. Steven Smith, whose TFN No. is 123456789. For investment related deductions, Interest on borrowing for the purposes of investment would be considered. In employment income deductions, Receipts of work related deductions such as travel expenses, etc. would be included. Tax offsets which are also sometimes known as tax rebates directly decrease the amount of payable tax on the taxable income of an individual (Woellner, Barkoczy, Murphy, Evans and Pinto, 2010). Usually, the tax payable can even be reduced to zero due to offsets; however, the tax offsets cannot give refunds to the tax payers on its own. The offsets here that would be included are spouse, spouse contributions to superannuation and medical receipts. The investment property would not be considered here are the client does not have any record of investment properties. The income earned statements would include the rental income, deductible amount for annuities, lump sum payments, payment and allowance statements, share dividend statements and income stream statements. The other deductions would include receipts of donations to charity and receipts of self-education expenses. In order to prepare the tax statements of new clients, their income tax assessment for the previous year, their ABN no. and details about the payment of PAYG installments (if any) would be required.

Tax Return Assessment for Individuals (Mr. Steven Smith)

The tax rates for individual income would be dependent on the year of income selected by the client and his status of residence for the purposes of income during that particular year of income. The foreign residents, who belong to a foreign country, but reside within the country, would be taxed at a much higher rate and would also not be entitled for a tax-free threshold. The residents, who are part year, might be entitled for receiving a tax-free threshold for the part-year. In this assignment, the tax return has been assessed for the client, Mr. Steven Smith who is an Australian resident. He is 28 years old and is married to Alessia Smith, who is also an Australian resident and is 27 years old. They reside at Perth’s Adelaide Terrace. The tax files number of Mr. Steven is 123456789. In the document, Mr. Smith is not sure if he needs to lodge for an Australian tax return in the future. By profession, he is a stock broker.

He is a salaried employee and his income is $10,000 per month which is taxable, out of which, $553 is withheld as taxes. He receives certain allowances from his employer of $1000 of which $54 is withheld as tax. Mr. Smith is entitled for receiving $5000 (Amount A) $4000 (Amount B of which only, 5%, that is $100 is considered only) as lump sum payments from his employer. He receives allowances of $1000 from the Australian Government for Austudy payment. The Australian superannuation and annuities income streams of the client are $2430 which is fully withheld for taxation. Until here, the total taxed element stands to be $3115 and the untaxed element is $17,100. He is attributed to personal services income of $117. The gross interest income received by Mr. Smith is $500. He also receives dividends from the employer, amounting to be $1000, of which, the unfranked amount was $300 and the franked amount was $7000. So the franking credit was $300. The total income of Mr. Steven stood to be $20,847. In the deductions section, the total deduction of Mr. Smith stood to be $6,275. The deductions included expenses related to work car, work-related travel, work-related uniform, work-related self education, certain other expenses related to work, deductions for interest, dividend, donations and cost of tax affairs management. The total income after deductions stood to be $14,572. Since there were no losses for Mr. Smith, his final taxable income was $14,572. He had offsets for Australian superannuation income stream of $2430 and certain income tests as well. These included fringe benefits, superannuation contributions and child support paid by him. Mr. Smith did not have any children. A full 2% medical levy exemption was made for him on his taxable income. The taxpayer’s declaration has been attached and duly signed.

Reference List

Australian Government, ATO, 2018. Tax professionals. Declarations required – you and your clients. [online] Available at: <https://www.ato.gov.au/tax-professionals/services-and-support/in-detail/practitioner-lodgment-service-user-guide/?page=5> Accessed on: 6 Dec, 2018.

Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2010. Australian taxation law. CCH Australia.