Tax 305 Taxation
Student’s Name
Institution
Studies have demonstrated that the concept of taxation is a matter of serious concern across almost all countries in different parts of the world as industrialization and infrastructural developments continue to evolve. The increasing developmental demands have inspired the government regimes in place to adopt measures that are aimed at an effective collection of revenue from the members of the public. The instant analysis considers the tax collection regime in Australia and proceeds to highlight the relevant policy and regulatory framework that govern the computation of tax liability that is due to the government from a particular individual. The increasing demands for economic and infrastructural developments within Australia has led to the rise of more changes on the system of taxation in order to allow for optimum collection of revenue which is useful towards the facilitation of the developmental agenda of the existing government regime.
At the present moment, the taxation system in Australia is structured in a scheduled manner and this serves as a central measure towards the collection of revenue in highly effective way. The tax system has in the recent days adopted the use PIT Plan as a central measure towards the determination of the tax liability that a given individual should pay to the revenue authority. The PIT Plan works as a column enabled system in which the total taxable income of a person is compared to the applicable tax bracket and this offers a concrete value of the liability that the revenue authority is bound to collect from such an individual. Indeed, In the case of John v Federal Commissioner of Taxation (1989) 166 CLR 417, it was observed that the statute makes specific provisions on how the revenue authority may undertake a minimization arrangement for a private citizen on tax liability. The introduction of the PIT Plan has been found to be most important in the context of the Australian tax system because it allows for the system to effectively exercise equality in the administration of tax for members of the public. The equality aspect is attained in the sense that the tax schedule is currently structured in a manner than has lower tax liability in the computation of citizens whose taxable income is lower than those with higher values.
At the centre of taxation in Australia is the concept of tax liability and this can be defined as the computed value of money that a particular person owes the revenue authority and is determinable through the calculation of taxable income under the recently introduced PIT Plan. At the core of the computation of tax liability is the consideration of the different aspects of a person’s income that include both the taxable income from the different sources of income on one hand as well as the non-taxable income and the exemptions on the other. The taxable income include salaries, wages obtained from different sources of income, the income from the sale of assets and properties known as the capital gains, and the total income amounts that are obtained from any other sources for an individual that include investments. Other aspects of taxable incomes include the money that is channelled towards medical care and social security insurance aspects of an individual.
In the instant case of tax calculation for Bruce Lee, this analysis adopts the approach the approach that emphasizes on the fact that calculation of tax liability focuses on taxable income as well as gross income. At the start of this calculation is the determination of the gross income that is computed by adding up the different aspects of Bruce’s income such as the total amount of wages earned, the salary due to him as submitted under the case study, the additional income like the medical care value and social security insurance as well as any other additional ordinary dividends. The second phase of the computation is then to subtract the total value of deductions that are accruable to Bruce Lee such as any savings or interests that have accrued or even tax waiver as a result of carry forward or additional contributory expenses like sum from the pension scheme or military exemption costs. After this process of subtraction, the value attainment in the computation which is referred to as the adjustable gross income is further altered by exclusion of other details of the military exempt and the value of carry forward tax in order to determine the correct base for liability calculation in the PIT Plan brackets. Specifically, the step involved in the computation of tax liability that is due to Bruce Lee in the submitted case study includes the following:
PART A: Under this, the computation of both the total amount of taxable income and the non-taxable income are worked out as shown in the table below.
Total Taxable Income Non- Taxable Income
The professional legal fees for Bruce Lee is reflected as 340,000 The submitted case study shows that the Income from part-time military service is 8,000
The submitted dividend amount for the Australian Company under Section 44 of the Statute is at 30% of 7,000 The total amount of money that is considered as the Carry forward for past year tax loss is $12,000.
Salary amount received from part-time lecturing at the University is reflected as 34,000 Bruce Lee has no medical care or any indications of Social Security Insurance indicate and hence not deductible
The total Interest that is accruable on Bank Deposits is shown as 5,000
The total amount of Rental income from an investment property is shown to be at 10,000
Total Taxable Income for Bruce Lee
= 391,100 Total for non-taxable will be tax carry forward less the exempt and is computed as follows: (12,000-8,000)= 4,000
PART B: The second phase is the calculation of the Adjusted Income and this is worked out by making key deductions on adjustments by taking away the exempts and deductions from the taxable income.
The adjusted income is obtained by taking away deductions from the taxable income shown above and is computed as shown in the table below;
Item for Deduction Total amount due on the item
The rent value for the Bruce Lee’s office 14,000
Total money paid to the contractor for cleaning services rendered to the office 10,000
Salary paid to employee secretary 50,000
Purchase of new calculator 290
Cost of meals and entertainment for himself and clients 1,400
Train fares for travel to and from work 1,200
Rates on family home 2,200
Electricity for family home 900
Tax agent’s fees for preparing tax returns for 2016/2017 1,000
Rates paid on abovementioned investment property 2,000
Interest paid on loan to acquire the investment property 15,000
Cost of painting the investment property immediately after purchasing the property 5,000
Cost of replacing roof tiles on the investment property after the roof was damaged in a severe storm in February 2018 1,000
Cost of extending the bathroom in the investment property 15,000 +290 (exempt below $300) as submitted in the case study for Bruce Lee
Total for the items = 118410
PART C: After the Adjusted Income is the exclusion of Exemptions
After the calculation of the Adjusted Income on the income amount of Bruce Lee follows the exemption of other dues as submitted in the case study and these include the details shown in the table below:
Total amount of income from part-time military service offered by Bruce Lee is shown at 8,000
The total carry forward amount that is accruable for the past year tax loss of $12,000
The submitted case study demonstrates that Bruce Lee does not have medical care or social security insurance although Medicare levy is computable under the PIT Plan under the 2% bracket for the taxable income column as will be shown in the next part of this calculation
Exemption total= 12,000- 8000= 4,000
Total= 4, 000
Total= (12,000-8,000)= 4,000
PART D: The adoption of the use of PIT Plan Table to calculate Tax Liability
As previously mentioned, the tax liability is computed by checking out the value of taxable income against the applicable columns under the table. The taxable income is worked out by subtracting all the deductions and the exemptions from the gross income of Bruce Lee and the total value is as shown below:
Taxable Income: 268, 690
The Australian Revenue system recently enacted the usage of PIT Plan table as a central measure towards ensuring equality within the taxation system for the different members of the society. This is justified by the case of Fletcher v Federal Commission of Taxation (1991) 173 CLR 1 where it was observed that tax deductions are rightfully permitted during instances where an individual can duly explain that he or she suffered considerable losses that are justifiable under tax exemptions. This postulate was further emphasized in the case of Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 516. The taxable income amount of Bruce Lee would be compared in the column or tax bracket where it belong under the table shown below obtained from the Revenue Authority of Australia for the Residents for the 2017/18 financial year commencing 1 July 2017 and ending 30th June 2018:
Taxable income (AUD) Tax on column 1 (AUD) Income tax on excess (%)
Over Not over
0 18,200 – 0
18,200 37,000 – 19
37,000 87,000 3,572 32.5
87,000 180,000 19,822 37
180,000 54,232 45
*Australian dollar (AUD)
The table shows the computational basis of liability for the residents and this is the category where Bruce Lee belongs. As submitted in the case study, the PIT rating for Bruce Lee for the income in the duration ending 30th June 2018 would include
Taxable Income= 391100- (118410+4000) = 268690
The applicable column for this taxable income within the PIT Plan table belongs under column ending with 180, 000 and the tax therein is 54, 232.
The computation also takes into consideration the taxation of any amounts that go in excess of 180, 000 and that is 88, 690.
Tax on 88, 690 is worked out as follows= 19822
Total Tax due: 54232 + 19822= 74054
Under Australian tax system, Medicare Levy is computed as 2% of the taxable income and the computation for the instant case of Bruce Lee would be undertaken as follows:
2% of 268690= 5373.8
Total Tax amount as obtained from the value of the Taxable Income 54232 + 19822= 74054
Amount of Tax due on the Medicare Levy (2% of the Taxable Income) 5373.80
Total Tax Liability 74054+5373.8=79427.80
References
John v Federal Commissioner of Taxation (1989) 166 CLR 417
Fletcher v Federal Commission of Taxation (1991) 173 CLR 1
Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 516
K Sadiq et al, (2018). Principles of Taxation Law, Thomson/Reuters, Sydney.
