Taxation : Three Sources of Income

Describe about the Taxation for Three Sources of Income.

(a) According to the provisions and TR 98/1 of Australian Taxation System, assessable income includes three sources of income i.e. personal earnings from salaries, business earnings and capital profits[1]. However, there are exempted incomes that are not required to be included in the assessable income like government allowance, disability pensions and such other grants[2]. As cited under the income tax case law of the year 2016 under BTC 3150 for assessable income 18 Arthur Murray, an income received before the work is done then it shall not be included in the assessable income.

In the given situation, Mary Johnson, an Australian resident is liable to pay tax on incomes earned during the period 1.07.2015 to 30.04.2016 as per ITAA 97 on 30 June 2016. As per the rulings under ITAA 97, following transactions are assessable under section 6-5 ITAA 97 in the books of Mary for 30 June 2016:

Salary and commission income

Allowance on Entertainment

Interest received excluding withholding tax

Receipt of money for early retirement

Leave salary

Cash prize for winning a contest

However, withholding tax shall be deducted from the total tax liability. Additionally, payment received by Mary as a part of medical workers compensation shall not be included in assessable income under section 6-5 ITAA 97.

(b)

Computation of Assessable income in the books of Mary Johnson, for the year 30 June 2016 under section 6-5 ITAA 97[3]:

Particulars

Amount $

Salary income from Prime Television (1/7/2015 to 30/04/2016)

45,000.00

Commissions

3,500.00

Entertainment allowance

1,500.00

Interest received on account with ANZ Bank

500.00

Interest received (Note 1)

1,000.00

Receipt from an approved early retirement scheme

80,000.00

Receipt of leave salary

2,000.00

Cash prize on 31/01/2016

1,500.00

Receipt for a severe injury during the client visit as workers compensation from Prime Television

Exempted

Total Assessable Income

135,000.00

Allowable Deductions:

 

There are no allowable deductions u/s 6-5 ITAA 97

Taxable Income u/s 4-15 ITAA 97

135,000.00

Table1: Assessable Income

(Source: Created by author)

Tax Payable for the year 30 June 2016

Taxable Income $

Tax rate on Income

Taxable amount $

1- 18,200

Nil

18,201- 37,000

19c for each $1 over $18,200

3,572.00

37,001- 80,000

$3,572 plus 32.5c for each $1 over $37,000

17,546.68

80,001 – 135,000

$17,547 plus 37c for each $1 over $80,000

37,896.31

Total

 

59,014.98

Low Income Tax Offset

 

Nil

Add: Medicare Levy @2%

 

1,180.30

Less: Withholding Tax

 

(150.00)

Less: Withholding PAYG Tax

 

(11,100.00)

Less: Withholding Tax on long service leave

 

(640.00)

Total Tax payable

 

48,305.28

Table2: Tax Payable

(Source: Created by author)

Note 1: Receipt of interest from term deposit account from Queenstown, New Zealand was subjected to 15% withholding tax. Net amount received was $850 therefore; gross amount taxable would be $1000. Further, the withholding tax $150 shall be deducted from the amount of tax payable.

Note 2: Salary from Brisbane Lions as a recruiter officer, which was joined by Mary on 25 June 2016, has not been received during the current tax year 2016. Therefore, no tax treatment shall be done for the same.

Note 3: Since the taxable income of Mary in the current tax year 30 June 2016 is higher than $66,667, therefore tax offset as a low- income earner under ITAA97 is not available to claim as deduction[4].

Reference List

Dubin, Jeffrey A, The Causes And Consequences Of Income Tax Noncompliance (Springer Science+Business Media, LLC, 2012)

Gebauer, J. E. et al, “The Psychological Benefits Of Income Are Contingent On Individual-Level And Culture-Level Religiosity” (2012) 4 Social Psychological and Personality Science

Hoffman, William H, James E Smith and James H Boyd, Individual Income Taxes, 2013 (South-Western/Cengage Learning, 2013)

Weltman, Barbara and J. K Lasser, J.K. Lasser’s 1001 Deductions And Tax Breaks 2012 (John Wiley & Sons Inc., 2012)

 

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