Taxation Theory, Practice and Law

TAXATION THEORY,
PRACTICE AND LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
a) Tips from customers. ..............................................................................................................2
b) Income from employment.......................................................................................................2
c) Perfume received from customer ............................................................................................3
d) Entertainment event paid by restaurant owner........................................................................3
e) Christmas gift from father of $ 15000.....................................................................................4
Question 2 .......................................................................................................................................4
a) Sale of house............................................................................................................................5
b) Sale of Car ..............................................................................................................................6
c) Sale of Small business enterprise.............................................................................................6
d) Sale of furniture ......................................................................................................................7
e) Sale of paintings ......................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Australian Taxation systems is one in the most complex tax systems in the world. It is
made of more than 125 tax including taxes like Capital gain, income tax, fringe benefit tax and
GST. There are number of organisations which are playing varied and different roles within the
system for ensuring integrity of taxation system, including equitable tax treatment of all the
Australians. Persons considering to become part of the Australian taxation system is required to
have detailed knowledge of system. The report will be addressing the concepts regarding the
income tax and capital gains of individual. Report will two questions for having more clear
understanding of the concepts of income tax system of Australia.
Question 1
Australian Taxation System
Taxation system of Australia relies heavily on the personal income tax. An individual
may receive income from working or from investment. Income may not be in monetary terms
like it may be in form of gifts or goods or services. Amounts received on winning prizes or gifts
usually do not form part of income. Income are classified into assessable, exempt and taxable.
Assessable income refers to income which could be taxed after crossing the threshold
limit. Examples of assessable income are ; salary & wages, gratitudes, tips or payments for
services, allowances by employer, interests on banks, dividends, bonuses, commission, pensions,
rent and like transactions (Mclaren and Passant, 2017).
Taxable income is defined as income on which tax is to be paid. It is the amount that is
left after claiming all the deductions for the expenses incurred from the assessable income.
Deductions are applied for reducing the taxable income and not over the tax liability.
The legislations governing the income tax of individuals & companies are Income Tax
Assessment Act, 1936 (ITAA, 1936) and Income Tax Assessment Act,1997 (ITAA, 1997) and
Fringe Benefits Tax Assessment Act, 1986. Capital gain taxation rules and provisions are include
in ITAA 97.
Assessable Income of Emmi
1

Assessable income of Emmi
Income from working at restaurant 25000
Tips from Customers 335
Total Assessable Income 25335
Deductions 0
Total Taxable Income 25335
Tax Calculations
0 – 18200 Nil
18201 – 37000 19.00%
Income 11665
Tax Rate 19.00%
Tax 2216.35
Medicare Levy (1.5%) 380.025
Total tax payable 2596.375
Total assessable income of Emmi for the year is $25335. Emmi has not available with
any type of deduction for reducing the taxable income. On the above taxable income tax liability
of Emmi is $ 2596.375 for the year including medical levy at 1.5% of 380.025. Assessable
income and taxable income has been calculated as per the rules and guidance provided by the
Australian taxation office.
Notes :
a) Tips from customers.
Tips received by the employee working at restaurant directly by customers or is
distributed by employer, is required to be reported as income by the individual in the tax return
as per the guidance issued by ATO. Ruling states tips received by hospitality employee is an
2