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Taxation Theory, Practice & Law

University: Holmes Institute Faculty Of Higher Education

  • Unit No: N/A
  • Level: High school
  • Pages: 9 / Words 2361
  • Paper Type: Assignment
  • Course Code: HI6028
  • Downloads: 224
Question :

This sample will let you know about:

  • Define Taxation Theory.
  • Discuss about Australian taxation.
Answer :
Organization Selected : N/A
Tax is charged by Government to generate revenue that is used to make public expenditure. In order to give relaxation to the people in tax payment Government prepare rules in respect to the deductions which one can receive if fulfil some conditions. In the present research study case of Emmi is analysed and relevant provisions are discussed to identify areas where she can receive deduction in income tax. In second part of the report capital gain tax provisions are discussed in respect to Liu. In this way, entire research work is carried out.

As per given case Emmi get a monthly entertainment event that is paid by the restaurant owner. On meal Emmi whatever amount spend, owner give budget of $380. It is basically a reward to the Emmi. In this case 51 AEA of the ITAA 36 applied. This section state that no tax will be charged on the Emmi. Instead tax will be charged on the employer and as per rules it has to pay 50% of overall bill as tax to the Australia Government. This rule applies when in a Fringe benefit year employer select division 9 A of the part 3rd of Fringe benefit tax assessment Act 1986 and sub division C not chosen by the employer. Tax payer can also follow rules of 37 CA of Fringe benefits tax assessment Act 1986. Under this law for overall expenditure that is made by the employer in respect to fringe benefit provided to the employee’s particular formula will be used to determine taxable amount (Income tax act 1936., 2019).

Section 51 AH indicate rules on deductions that are not allowable in case expenses that are incurred by employee are reimbursed. This rule applied when employee on behalf of the employer make any payment to the third party. Section 51 AJ indicate deductions that are not allowed for the private component of the contributions for fringe benefits. In case any employee receives fringe benefits like airline transport benefit, board benefit, loan benefit, property benefit and a residual benefit. All such kind of benefits are paid by the employer to his employees for office purpose. Hence, employee cannot be considered that can claim fringe benefit exemption in tax (Assessible income., 2019). It can be said that rules and regulations in the Australia are tightly prepared and no one by taking advantage of any rule can get exemption in the income tax.

Section 78 A applied in case of Emmi as it receives gift from the father on Christmas valued at $15000. On Christmas time Emmi receive expensive perfume of value $250. As per rule of the ITA 1997 if any gift is given by one person to another as cash or any other thing like property then in that case one has to pay tax and deduction is not allowed under division 30 of the Income tax assessment act 1997. Emmi receive gift from his father on occasion of Christmas which is not in monetary form and not of very high price like property. Hence, it can be said that Emmi is not liable to pay any sort of tax on gifts received from the father and other entities.

Assessable income of Emmi

 

Income from working at restaurant

 

$25000

Tips from Customers

 

$335

 

 

 

Total Assessable Income

 

$25335

 

 

 

Deductions

 

0

Total Taxable Income

 

$25335

From the table given above it can be said that total taxable income e is $25335. In order to obtain this value total income of the Emmi is considered and along with this, tip amount $335 that it received from customers in the restaurant is also taken into account to compute overall value of the taxable income of $25335.

Tax Calculations

 

0 – 18200

 

Nil

18201 – 37000

 

19.00%

 

 

 

Income

 

$11665

Tax Rate

 

19.00%

Tax

 

$2216.35

 

 

 

Medicare Levy (1.5%)

 

$380.025

Total tax payable

 

$2596.375

Total taxable amount is $11665 as income up to $18201 is exempt. Within slab of $0 to $18200 income tax of 19% is charged. This amount is charged on $11665 and in this way tax of $2216 is obtained and thereafter medical levy if 1.5% is more added. Thus, total taxable payable amount is $2,596. No deduction is available to Emmi as gifts it received were not in cash and not of big value or it was not an asset that can generate income in the future time period. Moreover, fringe benefits are tax payable from employer side. Hence, Emmi is not entitling to receive any deduction. 

As per the provision of Capital Gain Taxation, the residents of Australia are exempt from the taxes that are charged under the selling of residential house property in Australia owning from or before 1985. However the Australian Taxation Office has set certain guidelines for who can claim the exemption. The individual claiming exemption must be the owner either fully or jointly of the property and this must be the only residential property from which no income has been generated (Australian Taxation Office, 2020). However, if the person claiming exemption is a foreign resident or temporary tax resident, then they are not allowed to claim exemption under the sale of the residential property. The maximum exemption that a claimant can obtain under this rule covers the period when the residential property was not in use only under two scenarios:

  • When the owner of the property was absent from the property after they had declared the residential property as their main residence.
  • The time during which the claimant i.e. the owner incorporated renovation or further construction on the residential property before occupying it as the main residence.

However, if the claimant has earned any type of income such as rental income, home based-business income, or has realised any sort of gain from the residential property by using it for purpose other than for residential use, then all those income or gains will not be covered under the act and claimant will not be entitled to exemption under the CGT (Evans, 2019).

In the current case of Liu, it can be clearly stated that she is an Australian resident, has acquired her house before the year 1985 i.e. in 1981 and this house has been her main residential property throughout her life. It can be said that the entire income that she will earn from selling the house i.e. $630000 - $55000 i.e. $575000 will be exempt from the capital gain tax.

The Australian Taxation Provision states that all the capital assets that are acquired on or after the 20th September, 1985, are subjected to the provision of Capital Gain Taxation unless they are specifically excluded in the provision (Bateman and Piggott, 2019).

  • The personal assets such as residential home, car and other personal use assets like furniture etc. are exempt from the taxation purpose.
  • The CGT provision is also not applicable to the business equipments or other machineries that are taxable and are depreciated regularly or the assets i.e. fittings used in rental properties etc. because these are already taxable.
  • Any asset that is purchased before the date of 20th September, 1985.

Presently, in  accordance with the taxation purpose described above, it can be stated that the car was purchased after the year 1985 i.e. in year 2011, but as per the exceptions, since it was her personal car and was not used for any other purpose, the income that she is receiving in exchange of that car today i.e. $8000 is fully exempt under the capital gain taxation. Order assignment help from our experts! 

The Australian Tax Provision states that capital gain is charged only when a person sells the asset (Chung, 2017). When a resident of Australia sells an active business asset i.e. the asset that has been in use, there are four major concession or exemption scenarios that arise during CGT only for small businesses:

  • 15 year exemption: This provision states that if the business has owned asset for a continuous period of 15 years, if the person is aged 55 years or over, and if the person is retiring or has become incapacitated, then they may be exempt from the capital gain occurring from the sale of business or active asset.
  • 50% reduction on active asset: when the business is small and if the active asset has been owned for 12 months or more than the person is eligible for reducing the Capital gain with 50%.
  • Retirement exemption: When a business asset is sold, the capital gain from such sale of asset, up to the limit of $500000 is exempt (Krever and Sadiq, 2019). However, the seller must be 55 years or more and if the person is younger, they have to transfer the exempted amount into a retirement savings account or complying superannuation fund.
  • Rollover: When capital gain is made from sell of active asset, a part or the entire gain can be deferred for a period of 2 years on acquiring a replacement asset or incorporating improvements to the existing ones.

In the current scenario, Liu is above the age of 55 years and she is selling her photography business for $125000 and this is completely exempted under the capital gain tax provisions. Also, she will not have to transfer her funds in retirement savings or superannuation account.

The CGT tax provisions of Australia state that any item that is used by an individual for his own personal use will be termed as personal asset. However, this personal asset should be other than the category of collectables and covers goods such as boats, furniture, electrical goods and other household items (Freundenberg and Minas, 2018). If an individual is selling goods within these four categories, it will be termed as personal goods and only if the worth of good i.e. it is acquired at a price of less than $10000, will it be exempted from the capital gain taxation. However, if the cost of asset exceeds $10000, then the person cannot claim exemption as per the taxation provisions. In the current case of Liu, all the furniture items that she has sold cost less than $2000 individually. Therefore, under the taxation norms of Australia, it can be concluded that the entire capital gain of $4800 on the sale of furniture assets will be exempt from the taxation because every item is less than $2000. Therefore, Liu is not required to pay any tax for the capital gain earned from sale of furniture. Need Assignment Samples?Talk to our Experts!

The Australian Taxation defines collectibles as those personal use goods who are used for the sole purpose of enjoyment and includes following categories of goods:

  • Paintings, engravings, sculptures, drawings or photographs; any reproduction or duplication of such items or any property that is of similar description or purpose.
  • Jewellery
  • Antiques
  • Coins and medallions
  • Books, rare folios or the manuscripts
  • First day covers or the postage stamps

When a person is even interested in any of the items described above, has a debt from such items or has either an option or a right to gain ownership of such items than he is said to be the owner of the collectables (Paris, 2017). When the individual owning or having an interest in such collectibles satisfy any of the exceptions below, they are exempt from the purpose of capital gain taxation:

  • The value of the collectable is less than or equal to $500
  • The interest in collectable was acquired before 16th December, 1995 and for $500 or lower.
  • The market value of collectable was less than or equal to $500 at the time it was acquired.

In the current case, Liu acquired all her paintings for less than or equal to $500 except fro one painting that costed $1000. Therefore Liu would be exempt form any taxes on the paintings that were brought for $500 or less and painting of $1000 that was sold for $8000 would be taxed under the Capital Gain Taxation rules. Therefore, her capital gain of $28000 - $8000 i.e. $20000 is exempt from CGT and $8000 is taxable.

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