Tax Fundamentals Case Study

TAX FUNDAMENTALS

Table of Contents
INTRODUCTION...........................................................................................................................1
CASE STUDY 1..............................................................................................................................1
a) Residential status and relevant case laws and relevant tax rule..............................................1
b) Calculation of Australian assessable income .........................................................................2
CASE STUDY 2..............................................................................................................................4
Calculation of Joseph's taxable income in relation to superannuation lump sum benefit...........4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Tax is a liability of levied by the government upon individual, company and organisations to
generate funds for running economic operations of a country (Chi, Pincus and Teoh, 2013). This
report contains the procedure of assessing tax liability for individual assesses. Case study based
questions are analysed by applying Australian legislations, case law and relevant tax ruling to
assist answer.
CASE STUDY 1
a) Residential status and relevant case laws and relevant tax rule
Facts
As per the provision of residential status Dr peter Wong is an Australian pathologist
employed by Apex laboratories Ltd in Sydney since 2010. There is calculated residency status of
Dr Wong for the period between 1 July 2015 and 30 June 2018. The facts and related tax ruling
mention below -
 In June 2015, Dr Wong accepted a 2 year research fellowship at a new york university
and starting from 1 July, 2015.
 Apex Laboratories Ltd Keep Dr Wong as an employee so they offered part time position
and Dr Wong accepted and provide their services remotely from new york, travel to
Sydney for project meetings every 8 weeks.
 In December 2015, Dr Wong is working as a full time research position in new york.
 On 1 January 2016, resigned from apex and apartment remained rented at the same price
(Gibb, 2015).
Residency status - There is apply income tax 1936 and calculated time period to stay in
Australia and residency status -
 In 2015-16, Dr Peter Wong stay 3 months in Sydney from April to June but in July 2015
shift in new york and provide their services from new york.
 In the year 2015-16, travel for project meetings in every 8 weeks in Sydney. In January
permanent shift in new york.
2015-16 Residency status
April to June 3 Months (Sydney)
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July to December 6 Months (Sydney + New york)
January to march 3 Months (New york)
 In 2016 – 17 and 2017 – 18, Dr Wong will be continue to be assessed as a resident of
US.
Resident test -
The primary test of tax residency is called the resident test and from the tax purposes
there is considered Australian resident and apply any of other resident test. The test describes
some factors such as purpose of presence in Australia, business ties and business and related to
social life, bank accounts and living arrangements.
 Domicile test – According to this test domicile is in Australia, unless there is need to
satisfied about permanent place of adobe is outside of Australia or not (Australia tax,
2019).
 The 183 day test – This test applies when actually present in Australia more than half
year of income tax year. It there is consider any break so its known as constructive
residence in Australia. It can be established when continue living in Australia and people
have no intention of taking up residence any other place.
 The Superannuation test – This test applies by Australian government to working
employee who are posting overseas and become member of the CSS or PSS schemes. On
PSSAP scheme this test is not apply.
Case – In 2013, a legal decision present a people include as Australian people because he
does not cut their connection with Australia.
b) Calculation of Australian assessable income
There is firstly describe total income of Dr Peter Wong that was coming from salaries,
interest, dividends, rents and fully franked dividends.
 Salaries - $50000 per year
 Dividends - $3000
 Interest on US bank deposits - $180 (10% US with holding tax)
 Fully franked dividends - $2000
 Rents from Sydney apartments - $20,000
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 Annual salary from new york university - $100,000
 Travel allowance - $10,000
According to income tax Act 1936, Salaries, dividends, interest and fully franked
dividends including in other sources incomes and rent from apartment includes in house property
income. There is calculated per year income of Dr Wong from their income sources -
In 2015-16 Net amount
April to June Salaries ( 3 months) $12501
July to December Salaries (6 months) + Dividends
(October) + Interest (September ) +
Rents (6months)
$37503 + $3000 + $180 +
$10002 = $50685
January to March Salary from new york (8333*3) +
Travel Allowance (10000/12)
$25832
Total income $89018
In 2016-17 Net Amount
April to march Salary from New york university +
Travel allowance
$100,000 + $10000
= $110,000
April to march Rent of apartment $20,000
Total income $130,000
In 2017-18 Net Amount
April to march Salary from New york university +
Travel allowance
$100,000 + $10000
= $110,000
April to march Rent of apartment $20,000
October Fully franked dividends $2000
Total income $132,000
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Notes – Marginal tax rate apply on Australian residents according to financial year 2017-18
Taxable income Tax payable on this income
0 - $18200 Nil
$18201 - $37000 19c for each $1 over $18200
$37001 - $87000 $3572 plus 32.5c for each $1 over $37,000
$87001 - $180000 $19,822 plus 37c for each $1 over $87,000
$180001 and over $54,232 plus 45c for each $1 over $180,000
CASE STUDY 2
Calculation of Joseph's taxable income in relation to superannuation lump sum benefit.
Total income 500000
less:- Un - deducted contribution -50000
Taxable income 450000
Taxable income 450000
Tax slab rates: -
$18200- Nill 0
$18800 @ 19% 3572
$53000 @ 32.5% 17225
$90000 @ 37% 33300
$270000 @ 45% 121500
Total tax payable amount 175597
Note: - Pre-july 1983 Components $3,00,000 amount in the year 30 June 2007, it is an interest
components till the year 2007. which is already included in the balance of 30 June 2018 and the
amounts is $5,00,000. This value include the un-deductable amount of $50,000 which is made in
the year 2010 to 2015. Total tax payable amount of the year 30 June 2018 is $1,75,597.
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Superannuation benefit is like a income tax benefit which is for employer as well as for
employees (Mitra, 2016). This benefits is restricted for all and it is only approved by the
superannuation fund. It is an important approval who obtained from commissioner of income tax
and to follow riles which is listed in Part B of the fourth schedule of Income Tax Act.
Above tax slab rate is according to Australian residents and these rates not include the
Medicare levy of 2%. Due to the question requirement is clearly mention that exclude the
Medicare levy.
According to Australian residential tax rates 2018-19.
Taxable income Tax Rate
0 - $18,200 Nill
$18,201 - $37,000 19.00%
$37,001 - $90,000 32.50%
$90,001 - $1,80,000 37.00%
$1,80,001 and above 45.00%
Tax payable amount is calculated on the basis of above tax rates and Joseph's have
remaining balance after deduction is $2,74,403 ($4,50,000 - $1,75,597).
Superannuation lump sum benefit defined in the operative provision, 15-2 under the
Income Tax Act 1936. This benefit is related to retirement but it is not same always. People can
withdraw their amount in more than one lump sum. Mostly superannuation benefit take by the
after 60 age, but in some cases it can provide to the under age of 60.
When employee take all superannuation benefit then they have to pay tax on their amount
(Nel, Bruwer and le Roux, 2014). Tax rates is applicable according to Australian Income Tax
slab rates which is different at different amount. It is very complex benefits which includes the
different factors such as contribution, fund income and taxation benefits. Contribution include
the different level of cap or contribution limit. Fund income involve those income which is
related to accumulation or retirement phase. It is no matter that tax rate is 15% or up-to 45%.
Taxation benefit also depend upon the age of employees because tax rate is also classified
between more than or less than 60 age.
This superannuation lump sum retirement have many benefits which is written in the
Australian provisions. It helps the people to secure their future ans also save money in the term
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of these benefits. It includes the tax effective savings because it will make Australian people to
become self confident or sufficient for their future in the terms of retirement. It includes the
levels of tax which motivate people to contribute (Eichholtz, Huisman and Zwinkels, 2015).
Another benefit is salary sacrifice because this amount is directly taxable 15% rather than
45% taxable. Because if this amount is not sacrifice than it will taxable under 45% tax rates so it
is beneficial for sacrificing salary for the retirement benefits. Lower tax rate during retirement is
one of the benefit of superannuation. After retirement people almost reached at the age of 60 and
than the tax rate is 15% on collected amount which is directly gives benefit to the employees
(Toms, S. and Fleischman, 2015).
Superannuation provide protection from bankruptcy because if people claim bankruptcy
than their super funds are protected because of the Reasonable Benefit Limit (RBL) of the
pension. For taking this advantage financial planners will help the people more and these
financial institute approved by the Australian government.
CONCLUSION
The above report concise the tax assessment according to Australian legislations and rules.
Tax liability for three years are analysed on the basis of individual tax assessment rules and
legislations. First question summarises the nature of tax liability in relation to superannuation
lump sum benefit after providing related deductions and rebates. Second question assure the tax
liability of assesses.
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REFERENCES
Books and Journals:
Chi, S. S., Pincus, M. and Teoh, S. H., 2013. Mispricing of book-tax differences and the trading
behavior of short sellers and insiders. The Accounting Review. 89(2), pp.511-543.
Gibb, K., 2015. The multiple policy failures of the UK bedroom tax. International Journal of
Housing Policy. 15(2). pp.148-166.
Mitra, A., 2016. Fundamentals of quality control and improvement. John Wiley & Sons.
Nel, S., Bruwer, W. and le Roux, N., 2014. An emerging market perspective on peer group
selection based on valuation fundamentals. Applied Financial Economics. 24(9).
pp.621-637.
Eichholtz, P., Huisman, R. and Zwinkels, R. C., 2015. Fundamentals or trends? A long-term
perspective on house prices. Applied Economics. 47(10). pp.1050-1059.
Toms, S. and Fleischman, R. K., 2015. Accounting fundamentals and accounting change:
Boulton & Watt and the Springfield Armory. Accounting, organizations and Society.
41. pp.1-20.
Keister, T. and Narasiman, V., 2016. Expectations vs. fundamentals-driven bank runs: When
should bailouts be permitted?. Review of Economic Dynamics. 21. pp.89-104.
Online
Australia tax. 2019. [Online]. Available through: <https://www.dmsmigration.com/pr-visas-
australia/>
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