LAW203 Taxation Law

Assessment 1 – Quiz

Question 1(15 marks)

Tina is an Australian resident adult who is employed by the ATO in the superannuation area. Her

total salary for the income year ended 30 June 2020 is $75 000, from which her employer

withheld Pay as You Go (PAYG) income tax instalments totaling $18 225.

Tina has a share portfolio which has generated franked dividends of $8 000 and franking credits

of $4 777, which are both assessable income. Tina has incurred interest expenses of $9 000 on

the loan taken out to purchase the shares.

Tina is married and lives with a dependent spouse whose income allows her to claim a dependent

spouse tax offset of $1 500.

Required:

a. Is Tina a taxpayer entity? What section of the ITAA97 determines whether she is a

taxpayer entity?

Yes, Tina is a taxpayer entity as an Australian resident adult because of the provision of

Income Tax Assessment Act 1997 section 4-1 as an individual.

b. Which section of the ITAA97 defines the basic tax equation?

Section 4-10 of the ITAA97 defines the basic tax equation.

c. Which section of the Act defines the “year of income”?

Section 4-10 of the Act defines the “year of income”.

d. Is Tina’s salary assessable income under the ITAA97. If so, under which section and how

much is assessable income?

Tina’s assessable income includes an amount she receive under an arrangement that she

enters into for a purpose of inducing to resume working for, or providing services to, any

entity. So Tina’s salary is assessable income under section 15-2 and 15-3 of ITAA97. The

assessable income of Tina is $78,552.

e. Are the dividends and franking credits received by Tina assessable income under the

ITAA97? If so, under what section and how much is assessable income?

Yes, the dividends and franking credits received by Tina are assessable income under the

section 15-80 of ITAA97. So Tina’s assessable income is $78,552.

f. Which section of the Act determines whether the interest expenses incurred by Tina are

tax deductible? Do you think the interest expenses are deductible?

SECTION 8-1 of the Act ITAA97 determines that the interest expenses incurred by Tina

are tax deductible. Also the interest expenses are deductible because these expenses falls

in the category of investment income whether it paid directly to Tina or through a

distribution for a partnership such as a share club.

g. Calculate Tina’s assessable income.

 Assessable income of Tina is $78,552.

Salary = $75000 – $18,225 (PAYG Installments) = $56,775

Franked dividends = $8000

Franking Credit = $4777

Interest expenses = $9000

Total Assessable Income = $78,552

h. Which section of the Act determines the rate of income tax to be paid by Tina?

Section 4-10 of the act ITAA97 determines the rate of income tax to be paid by Tina.

i. Calculate the amount of Tina’s “basic” income tax liability.

Your taxable income: $75,000

Income tax payable: $14,842

Medicare levy payable: $1,500

Your income after tax & Medicare $58,658

levy:

Your marginal tax rate: 32.5%

This means for an annual income

of $75,000 you pay:

No tax on income between $1 - $0

 $18,200

19c for every dollar between $5,092

$18,201 - $45,000

32.5c for every dollar between $9,750

$45,001 - $120,000

Income tax payable $14,842

j. How will Tina’s entitlement to a dependent spouse rebate and the franking credits be

taken into account?

The refund applies because the total imputation or franking credits that are attached to

Tina’s franked dividends paid exceeds her basic income tax liability for the year. Tina

could not rebate the franking credit because it only implies if her dividends and franking

credits i.e.; $12,777 will exceeds her basic income tax liability for the years which is

$14,842.

k. Under which section of the Act is income tax imposed on Tina?

 Section 4-1 of the act imposed tax on Tina.

l. What is the amount of Medicare levy payable by Tina?

Tina has to pay an amount of $1500 as Medicare levy.

m. How will the PAYG income tax instalments withheld from Tina’s salary be taken into

account?

Tina has a share portfolio which has generated franked dividends of $8 000 and franking

credits of $4 777, which are both assessable income. Tina has incurred interest expenses

of $9 000 on the loan taken out to purchase the shares. This withheld PAYG income tax

instalments from Tina’s salary be taken into account.

n. Should Tina expect to receive a refund or a bill after she lodges her tax return? Work out

the amount of the refund or bill.

No, Tina will not receive a refund after she lodges her tax return but she have to pay an

amount of $6138 as a tax.

Question 2 (5 marks)
Bridget and her husband are moving from London to Australia permanently under an

employer-sponsored arrangement. Bridget and her husband have a joint bank account in

London which leave open for the purposes of the rent coming from their home which

they hold onto. They rent out what was the family home and the money is deposited into

the London bank account. The London bank account also earns interest. Bridget and her

husband pay tax in the UK on both the rental property income and interest income. Their

UK accountant has advised them that they will not have to pay tax on the income in

Australia because it is sourced in the UK. Bridget and her husband come to you to

confirm whether this advice is correct. Advise your clients.

The new tax treaty between Australia and also the UK, furthermore because the Notes,

are in line with the directions stated by the Australian government in its treaty strategy.

Additional clauses on employee equity ownership plans, alliances, dual listing firms, and

a non-discrimination article are included within the treaty and Notes. The Notes contain

variety of operative provisions which apply to the tax treaty, also as an explanatory

clause.

The main features of the tax treaty is Dual resident persons (i.e. persons who are residents

of both Australia and UK in keeping with the domestic law of every country) are, in

accordance with specified criteria, to be treated for the needs of the tax treaty as being

residents of just one country. Where a non-individual like an organization is resident in

both countries for his or her domestic tax purposes, the entity are going to be deemed to

be a resident of the country within which its place of effective management is situated. A
special provision has been included to deem a participant during a ‘dual listed company

arrangement’ to be resident only within the country of incorporation, on condition that

the participant has its primary securities market listing within the same country [Article 4,

paragraphs 3 to 5].

• Income from realty could also be taxed fully by the country during which the property

is situated. Income from belongings for these purposes includes resource royalties

[Article 6].

• Business profits are generally be taxed only within the country of residence of the

recipient unless they're derived by a resident of 1 country through a branch or other

prescribed permanent establishment within the other country, within which case that

other country may tax the profits. These rules apply to Dividends, interest and royalties

may generally be taxed in both countries, but some limits are there on the tax that the

country during which the dividend, interest, or royalty is sourced may charge, on such

income flowing to residents of the opposite country who are the beneficial owners of the

income [Articles 10 to 12] So, Bridget and her husband will not have to pay tax on the

income in Australia because their property is sourced in UK.

Work Cited

https://www.legislation.gov.au/Details/C2013C00082

"Medicare levy". Australian Taxation Office. 31 August 2016. Archived from the original on 29 June 2013. "Medicare

gives Australian residents access to health care. It is partly funded by taxpayers who pay a Medicare levy of 2% of their

taxable income."

"Medicare levy". Australian Taxation Office. 31 August 2016. Archived from the original on 29 June 2013. "Medicare

gives Australian residents access to health care. It is partly funded by taxpayers who pay a Medicare levy of 2% of their

taxable income."

https://www.ato.gov.au/

Income Tax Assessment Act 1936, Part VA.

Inspector General of Taxation (IGT), Review into the Australian Taxation Office’s compliance approach to individual

taxpayers – use of data matching (Data matching review) (2013) pp 811.

https://treasury.gov.au/tax-treaties/income-tax-treaties#fnt1

The Application of the OECD Model Tax Convention to Partnerships (1999).

https://www.litrg.org.uk/tax-guides/migrants/residence-and-domicile/how-are-foreign-income-and-gains-taxed