This task entails detailed analysis of tax aspect relating to both resident and non-resident citizens in Australia. It is more of analyzing tax issues on the scenario presented before me for; calculation, application, scrutiny, and test on whether there exists compliance in its administration for taxation-law purposes within the stipulated tax year June 2018.
This question tests tax treatment and calculation for citizens as either resident for tax purposes and as non-resident for tax purposes. Australian Tax Office has outlined different tax calculation and approach in dealing with incomes from these individuals i.e. resident and non-resident for tax purposes whereby there is the use of different tax range brackets involved in the calculation (Handley, 2008.p.90.) These brackets are;
Taxable Income Tax on this income
0-$18200 Nil
$18201-$37000 19c for each $1 over $18200
$37001-$87000 $3572 plus 32.5c for each $1 over $37000
$87001-$180000 $19,822 plus 37c for each $1 over $87000
$180000 and over $54,232 plus 45c for each $1 over $180000
Taxable income Tax on this income
0-$87000 32.5c for each $1
$87001-180000 $28275 plus 37c for each $1 over $87000
$180001 and over $62,685 plus 45c for each $1 over 180000
Q1 (a) An Australian Individual resident for tax purposes who earns a taxable income of 15000 Australian Dollars is subjected to the tax bracket of resident individual where his income lies in the range of between 0 dollars to 18200 dollars whose tax amount portion on his income defined within this bracket is a nil amount hence a resident earning 15000 is exempted from paying tax because he is below the 18200 tax threshold.
Tax payable=nil or zero
Q1(b)A similar amount of 15000 Australian Dollars owned by a non-resident is likewise subjected to the tax bracket of non-resident 0-$87000(it lies between 0 to 87000) hence eligible to pay the tax of 32.5 cents for each 1dollar earned hence calculation is;
Tax Payable=15000*32.5/100=$4875
Q1(c) Australian companies’ taxable income of 15000 Australian Dollars, on the other hand, is seen to take a different approach for taxation purposes whereby they are not based on tax brackets instead they are calculated using base corporate tax rate of 27.5% hence the 15000AUD is multiplied by 27.5%,
Q1 (d) a resident with a taxable income figure of $155000 is eligible to pay the tax within bracket;
Taxable Income – Tax on this income
$87001-$180000 – $19,822 plus 37c for each $1 over $87000
Hence he is eligible to pay the base rate of $19822 thus calculating the over amount tax aspect.
The over amount=155000-87000=$68000, this, therefore, is what that is taxed hence=
=68000*37/100=$25160
Tax Payable=25160+19822=$44982
Q1 (e) A non-resident earning the same amount of 155000 is however subjected to the tax bracket serving the foreign citizens by using the tax bracket;
Taxable Income Tax portion in the income
$87001-180000 – $28275 plus 37c for each $1 over $87000
The over amount is=155000-87000=68000AUD this is what is to be subjected to 37cents tax policy=68000*37/100=25160, hence this is summed with the base tier of 28275 AUD.
Total Tax Payable=25160+28275 =53885AUD
Q1 (f) A company with the taxable value of 155000 is directly subjected to the June 2018 corporate tax rate of 27.5% hence
Taxable Pay=155000*27.5%=$42625
Q1 (g) A resident with the taxable income of 255000 uses brackets;
$180000 and over – $54,232 plus 45c for each $1 over $180000
Over amount=255000-180000=$75000 hence tax portion is;
=75000*45/100=33750 therefore;
Taxable Pay=33750+54232=$87982
Q1 (h) a non-resident citizen for tax purposes who earns AUD 255000, on the other hand, is subjected to tax bracket;
$180001 and over – $62,685 plus 45c for each $1 over 180000, hence the over amount is=255000-180000=75000 thus the tax portion from this is=75000*45/100=33750AUD
Tax Payable=33750+62685=$96435
Q1 (i) A company with a taxable income value of 255000 is likewise taxed as;
=255000*27.5/100=$70125
Q1(j) A small business entity generating taxable income of $100 is eligible to claim a full 100% tax offset since the revenue income is less than 5million Australian Dollars far below the 8% offset tax rate limit of 1000 as stipulated by Australian Tax Office small business tax offset (Nolan,2018.p.7.)
This question tends to analyze the aspect of Australian Medical Levy and Medical Surcharge Levy for those with private health insurance scheme and those without. Medical Levy is applicable at Australian Taxation rate of 2% of taxable income whereby the 2% is to be contributed for medical health purposes and added to the taxable pay. However, for medical surcharge levy, this is only applicable to persons without private insurance scheme and those who are within the minimum threshold speculated.
Q(2a)A resident individual for tax purposes who earns an income less than 21655 AUD is hereby exempted and not allowed to subject his income to medical levy and surcharge hence the 18000 income earned by this individual is not apportioned for the levy and medical levy surcharge respectively. For income 18000 no medical levy no medical levy surcharge
Q(2b)Senior taxmen have a minimum threshold of income of 34244 Australian Dollars hence subjection for medical levy depends with whether the client earns more than this of which in our case the 32000 AUD is far less than the threshold hence no medical levy is payable by the senior tax man. The 90000 threshold for the senior tax medical levy base tier is likewise not fulfilled since his income is far less from this base with 68000 AUD hence no medical levy surcharge too.
Q (2c) This individual at age 40 is classified as senior officer for tax purposes hence with the 45000 income being more than the minimum threshold of 34244AUD hence his income eligible to be medically levied as=45000*2%=$900, however for medical levy surcharge this senior tax man is of course not eligible to account for medical levy surcharge because the taxable figure is below the threshold of 90000 by 45000 hence zero medical levy surcharge.
Q(2d) Australian Tax Office regulations exempt and bars foreign citizens and non-residents from paying the medical levy or medical levy surcharge as long as the foreigner is not tied to any dependent because if he or she is tied to the dependent has to enjoy medical levy and surcharge. Therefore in case, these foreign residents have no dependent hence they are not obliged to pay either medical levy or surcharge.
Q (2e) Although a company in the eye of the law is a legal entity person when it comes to medical levy and surcharge this does not apply because there are no genuine medical benefits they expect to enjoy since they are no biological disorder expected in their body hence to the other insurance applies but not any that relates to medical hence nil medical levy and nil medical levy surcharge applies to companies.
Q(2f)Regulations states that medical levy is applicable to incomes above the minimum threshold at a rate of 2% hence medical levy=2/100*110000=2000AUD is charged but for medical levy surcharge this is not applicable because this person is seen to hold a private health care insurance hence zero medical levy surcharge.
Q (2g) a person earning the same income of 110000AUD and without private health care policy is entitled to subscribe an amount of 1.25% of this amount of 110000 to medical levy surcharge since this income is within the peripherals of the 105001-140000 base tier that applies the 1.25% rate. Therefore medical levy surcharge=1.25%*110000=1375AUD while the medical levy on the hand is=2%*110000=2200AUD.
Q (2h) Australian Taxation Year lasts within 12months hence a full complete transaction year is 12months hence fractional apportionment has to be done on transactions that are not done with a year. A good example is medical levy surcharge that is not subscribed within the full year tax year hence the need to apportion surcharge up to 9/12 because the private health was enjoyed within 3 months.
Therefore medical levy surcharge=1.5/100*150000*9/12=1687.5AUD,
While medical levy=2%*150000=$3000
Q (2i) Tax regulations allow Victor as married couple’s income to be combined for income tax purposes hence likewise eligible for the medical levy and surcharge too. Therefore total combined income for tax purposes=110000+75000=185000 thus is the amount to be subjected to medical levy and surcharge (Seah, 2013.p.4.)
Medical Levy=185000*2/100=3700AUD whereas for Medical Levy Surcharge=185000*1/100=1850AUD
Q (2 j) The regulations is further seen to subject addition increase of 1500 on every dependent sired after the child number one hence by having 4children thus the addition 3 contributes =3*1500=4500, therefore using the minimum base tier threshold for medical levy surcharge of 180000AUD we calculate the minimum income payment that is to be done as=180000+ (3*1500) =184500AUD hence this income is what is to be subjected for medical levy surcharge purposes (Förster, 2014.p.159.)
This question is taken to calculate income tax payable that is only handled by first accounting for taxable income first then proceeding to tax this taxable income. Rob’s Taxable Income is calculated by adding bank interest to the salary earned then less allowable expenses
Rob’s Income Tax =32000+150-450=31700AUD, this taxable income is what Rob is to pay tax from hence 31700 is to be subjected to the Australian Tax Resident bracket tier of between 18201 and that of 37000,
From Rob’s income is taxed as; the cover of 18201=31700-18200=13500 thus subjecting this to the 19cents tax paid on the income as=13500*0.19=$2565 hence this is the tax that is to be paid.
However, this amount of tax by Rob is only payable if indeed did not have tax at source deducted as Pay As You Go in his income hence this has to be factored in as well as medical levy surcharge and levy too (Woellner,2012.p.5.)
Medical Levy is the 2% of the taxable income of 31700=$634 hence calculation for Tax payable;
Total Taxable Payable=Tax payable =2565AUD
Add Medical Levy =634AUD
Less PAYG = (2600 AUD)
Net Tax Payable =599AUD, this is the amount Rob is entitled to pay as tax payable. It should be noted that Australian Tax Office collects medical levy and surcharge with the tax on behalf of the regulated medical scheme.
It is also important to understand Rob has no medical levy surcharge since his income is far low below the threshold stipulated in the regulations by a figure of almost 58300AUD from the 90000 base. Conclusively the medical levy surcharge is at zero, medical levy at 634AUD and Tax Payable value of 599 Australian Dollars (Rankin, 2014.p.1970.)
Question 4; Ideally by virtual of having Raphael as a tax resident earning the gross consolidated income of Australian Tax Dollar 68000 there is nothing that hinders him from applying the resident income tax terms and condition of the bracket ranging between 37001 and 87000 AUD in calculating his tax. Hence we first need to get the over portion of 37000 dollars by deducting 37000 from 68000 hence =68000-37000=31000*0.325=10075 this is the overtax chargeable on the dollar that is above the bracket base tier.
Raphael is an Australian Tax resident hence the income tax bracket is applicable together with the medical levy. The medical levy will be =68000*2%=1360.
Dividend declared is an important item that too needs to be accounted for by factoring the impact of imputation frank dividend tax credit as illustrated here below (Feuerherdt,2010.p.400);
Franked Dividends involves summing up 2000+900 =2900 while un-franked dividends are done by summing up =1000+600=1600AUD hence using the frank dividends imputation frank dividend tax credit is calculated as=2900(total frank dividends)*30/70=1242.85
Total Dividend Declared In That Year Of Tax (McClure, 2018.p.505.)= 2900 + 1600 + 1242.85=5742.84 hence further tax analysis on this dividend has to be imposed at 30% thus=5742.84*0.3=1722.851AUD, from this tax on dividend, declared there is the need to set off the imputation credit from it by deducting 1242.85 i.e. =1722.85 – 1242.85 = 480 so as to curb the issue of double taxation and tax cascade.
With these items calculated we can comfortably now calculate Raphael Tax Payable as AT June 2018;
Total Tax Payable= 13647 + 480+ 1360 – 15100 = $ 387, this amount is net Pay As You Go so as to curb the issue of double taxation.
References;
Feuerherdt, C., Gray, S., & Hall, J. (2010). The value of imputation tax credits on Australian
hybrid securities. International Review of Finance, 10(3), 365-401.
Förster, M., Llena-Nozal, A., & Nafilyan, V. (2014). Trends in top incomes and their taxation in
OECD countries. OECD Social, Employment, and Migration Working Papers, (159), 0_1.
Handley, J. C., & Maheswaran, K. (2008). A measure of the efficacy of the Australian
imputation tax system. Economic Record, 84(264), 82-94.
McClure, R., Lanis, R., Wells, P., & Govendir, B. (2018). The impact of dividend imputation on
Corporate tax avoidance: The case of shareholder value. Journal of Corporate Finance,
48, 492-514.
Nolan, P. (2018). Effective Marginal Tax Rates: The New Zealand Case.
Rankin, K. (2014). New Zealand’s Income Tax in the Rollercoaster Muldoon Years: 1967-84.
Seah, D. S., Cheong, T. Z., & Anstey, M. H. (2013). The hidden cost of private health insurance
in Australia. Australian Healthcare Review, 37(1), 1-3.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2012). Australian taxation law
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