Case Study 1
Solution
The main issue is to decide if Marc is an resident or non-resident for Australian Tax purposes. Based on the facts it is clear that Marc is a resident of Australia for tax purposes.
As a resident Marc is assessable on his ordinary income under Sec6-5 (2) and statutory income under Sec6-10 (4) from all sources.
. i) Salary from his employer: $48,000 – The salary would be ordinary income as it is income from individual effort, a reward for abilities and standard or intermittent in nature s6-5 ITAA97.
. Ii) 15 Days annual leave $2500: Annual leave, which is accrued leave transfer Sec26-10. It is un deductible.
. Iii) Allowances are assessed under s15-2. These are assessable when given under professional grounds $1000
. Iv) a. Workers compensation $5000: It is assessable under ITAA 97 sec6-5 if ordinary income
. b. Compensation for loss of his right hand $35000: Not assessable for income tax also not subject to CGT ITAA97 sec118-37(1)
. c. Social Security Disability Support Pension $1000: Not assessable Sec25-50
. v) Interest from the Bank of America Term Deposit $850: The interest is considered ordinary income as a regular or recurrent receipt from property, s6-5 ITAA 97. If a taxpayer has assessable income from overseas he/she must declare in their Australian income tax return. And as Marc has already paid tax for his earned interest he may be entitled to an Australian foreign income tax offset, which will provide him relief from double taxation.
. vi) Cash $500 and an expensive bottle of whiskey from his co worker: Gifts given on professional grounds are assessable sec15-2, but personal gifts given for reasons not related with the recipient’s income producing activity are not assessable.
** $500 on firefighting gear s8-1 ITAA97
** $11500 PAYG withholdings s 159N ITAA36
Assessable Income:
Salary $48000
Annual leave $2500
Allowances $1000
Workers Compensation $5000
Interest from Bank $850
Total assessable income $57350
Deduction Firefighting gear ($500)
Taxable Income $56850 s4-15 ITAA97
Tax Payable
0 – $18200 Nil
$18,201 – $37,000 19% of excess over $18200
$37,001 – $80,000 $3,572 on $37000 plus 32.50% on excess over $37000
$80,0001 – $180,000 $17,547 on $80,000 plus 37% on excess over $80,000
$180,001 and above $54,547 on $180,000 plus 45% on excess over $180,000
Tax Payable
[($56,850 – $37000) x 32.5%] + 3572 $10,023.25
Medicare Levy
$56,850 x 2% $1,137 [s 251 (S) (1) (a) ITAA36]
Less Low Income Tax Offset: $445 – [($56,850 – $37000) x 0.015] $147.25 [s 159H; 159N ITAA36]
Less PAYG Withholdings $11,500 [s 18-15 Sch 1 TAA53]
Tax Refundable $487.25
Case Study 2
a). Genuine redundancy payment Subdiv 83 C
A genuine redundancy payment is made to an employee who is dismissed from employment because employee’s position is genuinely redundant (s 83-175 (1). It does appear that a ‘genuine’ redundancy exists, as cheesecake shop’s business has been restructured. Furthermore there is no arrangement entered into between the employer and employee to employ the dismissed employee after termination (2 83-175(2)(c). Based on the fact the payment of $85,000 made to Jane by her employer meets the definition in s 83-175 ITAA97 as a genuine redundancy payment, s 83-170(2) ITAA97 will apply to make any amount of the payment, which is below the threshold non-assessable non-exempt income. The threshold for the 2016 income year is worked out as follows (s 83-170(3));
Base amount + (Service amount x Years of service)
$9,780 + ($4,891 x 14)
= $78,254
Therefore $78,254 will not be assessable income. The remaining $6,746 will be regarded as ETP. This amount will be included in the assessable income of the taxpayer.
Unused Annual Leave Payment
The amount of $5,600 that is regarded, as unused annual leave will be assessable income to Jane as per s 83-10. And as the payment was result of genuine redundancy payment Jane will be allowed to apply for tax offset and she will be taxed at no more than 30% (s 83-15) ITAA97 + ML.
b). Tax withholding amount
Payment Type Reason Calculation
Unused annual leave Termination because of genuine redundancy withholding rate is 32% $5,600 x 32%
= $1,792
References
Australian Taxation Office (2017), Redundancy Payment, Retrieved from https://www.ato.gov.au/Individuals/Working/Working-as-an-employee/Leaving-your-job/Redundancy-payments/
Australian Taxation Office (2017), Schedule 7 – Tax table for unused leave payments on termination of employment, Retrieved from https://www.ato.gov.au/Rates/Schedule-7—Tax-table-for-unused-leave-payments-on-termination-of-employment/
Australian Taxation Office (2017), Taxation of Termination of Payment, Retrieved from https://www.ato.gov.au/Business/Your-workers/In-detail/Taxation-of-termination-payments/.
Australian Taxation Office (2017), Working out your Assessable Income, Retrieved from https://www.ato.gov.au/Business/Income-and-deductions-for-business/Working-out-your-assessable-income/
Barkoczy. (2016), Australian Tax Casebook, Oxford University Press.
Barkoczy. (2017).Core Tax Legislation and Guide Book, Oxford University Press.
Barkoczy. (2017). Foundation of Taxation Law, Oxford University Press.
