Intermediate Accounting: Tax Compliance and Reporting

Desklib provides solved assignments and past papers to help students understand complex accounting and taxation concepts.

Accounting
1

Table of Contents
Task 1- Theory Assessment...........................................................................................................3
1.......................................................................................................................................................3
2.......................................................................................................................................................3
3.......................................................................................................................................................3
4.......................................................................................................................................................3
5.......................................................................................................................................................4
6.......................................................................................................................................................4
7.......................................................................................................................................................4
8.......................................................................................................................................................4
9.......................................................................................................................................................4
10.....................................................................................................................................................4
11.....................................................................................................................................................5
12.....................................................................................................................................................5
13.....................................................................................................................................................5
14.....................................................................................................................................................5
15.....................................................................................................................................................5
16.....................................................................................................................................................6
17.....................................................................................................................................................6
18.....................................................................................................................................................6
19.....................................................................................................................................................6
20.....................................................................................................................................................7
21.....................................................................................................................................................7
22.....................................................................................................................................................8
23.....................................................................................................................................................8
24.....................................................................................................................................................9
25...................................................................................................................................................10
26...................................................................................................................................................11
Task 2: Case Study and Practical Assessment..........................................................................12
Question 1 – Case Study: Robert and Amber...........................................................................12
A. Tax Payer Detail Form.................................................................................................12
B. Income Worksheet........................................................................................................14
C. Tax Ruling.....................................................................................................................14
Question 2 – Short Calculations.................................................................................................15
Question 4- David Lucas.............................................................................................................18
a. Role play and report.....................................................................................................18
References.....................................................................................................................................21
2

Task 1- Theory Assessment
1.
Key sources of information and data required to compute taxable income in Australia is
classification of revenue and classification of expense. Both revenue and expense information is
required to compute taxable income (ATO Tax rates, 2015).
2.
Features of organization policies and procedures relevant to preparation of tax documentation
includes agreements and contracts made by the organization as it specifies the information
related to the individual whose tax documentation is being filed. Second organization principle
includes documents related to tax concessions of the organization which provides tax benefit to
the individual.
3.
Accounting principles and practices that are applied while preparing the documentation for
individual taxpayers includes:
 Accrual principle: This states that transaction should be recorded in period when the same has
occurred and not when the cash flows related to them occur (ATO Tax rates, 2015).
 Prudency Principle: This states that expenses should be recorded whenever the same has been
identified whether payment for the same has been made or not and income should be recognized
only when reasonable certainty for such income exist
4.
Code of professional conduct does not disallow to have any conflict of interest but the same
should be managed properly and arrangements should be made in relation to conflicts related to
activities that are undertaken as a registered tax practitioner. Several mechanism like control,
avoid and disclosure of conflict can be used to manage conflict (ATO Tax rates, 2015).
3

5.
As per APES 220, tax practitioner must prepare and lodge returns and several other documents
with ATO in relation to applicable laws of taxation, information provided by client and
according to any specific instructions provided (Australian Taxation Office, 2017).
6.
Responsibilities of tax agents under the Code of Professional Conduct include honesty and
integrity, independence, confidentiality etc.
7.
Following requirements must be met by tax agent to register:
 Must be of at least 18 years of age
 Fit and proper person
8.
Legal environment in which principles of Australian Tax Laws operate is Commonwealth
Legislation which includes income tax assessment tax Goods and service tax act and other
several related legal acts.
9.
Income tax is imposed on the income of individuals of Australia and corporates established and
set up in Australia. Tax is imposed at progressive rates varying from Nil to 45%. In addition to
tax Medicare levy is also levied at 2% (Australian Taxation Office, 2017). Also low income off
set can be taken by Australian resident individuals if income is below particular limit.
4

10.
Levy of taxation and its constitutional validity is found in various sections of the constitution of
Australia. Section 51(ii) states the legislative powers of parliament in relation to tax. Other
sections include section 90, 55, 96, 53 of constitution of Australia (Australian Taxation Office,
2017).
11.
Institution of government is divided into three branches namely legislative, judicial and
executive branch. Legislative branch states the laws and regulations for tax, judicial branch gives
judgements on any issues and executive branch helps in proper execution of taxation laws in the
country.
12.
Person residing in Australia for the relevant year is considered as resident of Australia for tax
purposes. Individual is considered Australian resident if the permanent home is in Australia. If
individual has come to Australia and stayed for 183 days or more in relevant year then he/she is
considered as resident for tax purpose (Australian Taxation Office, 2017).
13.
Source of income is relevant for determining the accessibility of the income under Australian
Tax Legislation. It should be noted that all sources of income should be properly analyzed to
compute whether such income in generated in Australia and forms part of Australian income of
the individual.
14.
Two related elements of international tax include international income and international resident.
International income is that which is not incurred or accrued in Australia but incurred in some
other country (Australian Taxation Office, 2017). International resident is person which is not
considered as resident for Australia and is a related person of resident in international
transaction.
5

15.
Assessable income is the amount which is considered for taxation purpose and includes ordinary
income, any income which has been specified in income tax law. Also income which has not
been specifically included as exempt income is included in the assessable income as per tax law
of Australia.
16.
General deduction: These deductions are those which are incurred for gaining income which is
not for business purpose like salary income, wages etc. Example work related expenses,
investment related expenses
Specific Deduction: These deductions are not directly related to personal income. Example
includes gifts and donation, union fees and subscription etc (Australian Taxation Office, 2017).
Decline in Value: This means that the value of a certain asset or income recognized is declined
during the year and its recognition is made. It includes decline in value of plant and property,
decline in value of investments.
17.
Tax offsets and rebates is the amount which helps in direct reduction of the amount of tax to be
paid on the income (Australian Taxation Office, 2017). However it should be noted that if the tax
payable is less than the available offset then in that case the individual will have to pay nil tax
but will not be eligible for refund.
18.
Tax accounting is the field of accounting which focuses on the taxation aspect rather than the
presentation of financial statements. This type of accounting specifies rules which should be
included and are helpful in preparing the tax returns.
6

19.
Super income tax: Two types of offsets are eligible under super income tax which includes
Australian Super Income Stream Tax offset equal to 15% of taxed income and 10% of untaxed
income. Second offset is on super contribution on behalf of spouse.
Adjusted taxable income: ATI is dependent for any offsets availability which includes adjusted
fringe benefits. Fringe benefits include amount received from employers which is exempt as well
as not exempt from FBTA act 1986 under section 57A (Australian Taxation Office, 2017). The
exempt portion is multiplied by 0.53 to compute ATI amount but no treatment for non-exempt
portion.
Rebate income: Rebate income includes the total of taxable income following other incomes:
 Super contributions reportable
 Investment loss (Net)
 Total of fringe benefits as computed in adjusted taxable income above
Income for Medicare levy surcharge: This income is computed to ascertain whether the
individual is applicable for private health insurance rebate and if private health insurance is not
upto appropriate level then computation of liability of such surcharge (Australian Taxation
Office, 2017).
20.
Capital gain tax is the amount of tax charged on the difference between cost of asset and sale
price of asset when the capital asset is sold in the market. Aspects of principle of capital gain tax
include:
 Capital gain tax is paid on capital asset but forms part of the total income tax
 Loss on sale of capital asset cannot be set off from any other income of individual or any other
person (Australian Taxation Office, 2017).
7

Capital gain tax is applied on all types of asset but does not include personal assets like car,
furniture etc. Capital asset is not applicable to those assets also on which depreciation is charged
and used for taxable purposes.
21.
FBT is a tax on the benefits provided by the employers to the employees and the relatives of the
employees. Following are the principles of the FBT:
 FBT is applied even if not provided by employer directly but provided under an arrangement
with third party
 FBT is deducted for all the types of employees including current, past employees. It also
includes directors and beneficiary under its scope
 FBT is separately considered from income tax (Australian Taxation Office, 2017)
FBT can be charged on following items and benefit of income tax is provided on the same:
 Employee using official car for private use
 Employee provided with compensation on loan at discounted rate
22.
Lump sum payment made by the employer at the time of termination of employee by the
employer is considered as employment termination payment (Australian Taxation Office, 2017).
Principles of ETP include:
 Taxation of ETP is done in the year in which the same is received
 Concession received if ETP is received within 12 months of termination
ETP is applied in following cases:
 Payment for unused sick leave
8

 Payment for gratuity
 Payment for compensation of loss
23.
GST is a tax on goods and services sold or consumed in Australia. The rate of GST is 10% on
most of the goods. GST should be reported and paid by the business for the amount collected
from customers. GST refund can also be claimed in the form of GST credits (Australian Taxation
Office, 2017). Details relating to GST should be filed in tax documentation for individuals
regarding payment of the same.
24.
A. Documents used as supporting documents: Bank statements, Salary & wages statement, Tax
return of last year
B. Five years from the date of lodging tax return and for more than five years if the case is in
dispute (Australian Taxation Office, 2017).
C. Tax return for the previous year ending 30th June should be filed latest by 31 October.
D. Return can be filed after all the relevant information has been received from the client relating to
taxable income and signed declaration is received from the client in writing by the tax
practitioner. Confirmation is received by the client when the tax return is successfully filed on
the contact details provided by the client along with the copy of the return (Australian Taxation
Office, 2017).
E. Withholding of payments made to workers include:
 Payment made to workers in specific cases
 Payment to contractors cannot be withhold
Other payment withheld includes:
 Investment income if TFN not provided
9

 Dividend, interest paid to NR
 Payments to non-resident of Australia
F. Notice of assessment includes:
 Amount of tax payable
 Details not forming part of assessment
 Amount of penalty levied
 Interest and offsets amount
Waiting period for the notice of assessment is generally 2 years but can extend up to 4 years.
G. Obligations include:
 Lodging of return on time with all supporting documents
 Payment of along with interest and penalty with the return filing
H. Two ruling include:
 Public ruling: This includes taxation ruling, income tax ruling, GST ruling etc.
 Private Ruling: Related to only a particular tax payer and not applicable to whole public.
I. Penalties can be imposed in case of following:
 Failure to file return on time
 Failure to withholding of amount
J. Audit of individuals include the in depth examination of the income of individual to solve the
complicated issues and confusions arising in the income computation thus bringing in
transparency and determine the correct taxable income of such individual (Business.gov.au,
2017).
10

K. Steps ATO will take during review or audit includes:
 Conducting comprehensive risk review
 Find out the non-compliance along with the reasons for such non-compliance
25.
GAAR are the rules prepared by the Australian law to compute tax on the income which are
specified under these rules which in any other case gets exempted under income tax laws for all
the tax payers (Australian Taxation Office, 2017). GAAR is relevant for income tax
documentation of tax payers as it computes the eligibility of income for levy of tax and it shows
whether income should be taxed or not for the individual.
26.
Personal services income rules and falsely misrepresenting income are the major examples of
Specific Anti-avoidance rule which are under the control and subject to the Australia Taxation
Authority (Australian Taxation Office, 2017).
11

Task 2: Case Study and Practical Assessment
Question 1 – Case Study: Robert and Amber
A. Tax Payer Detail Form
Tax Payer Detail Form 1
* Title Mr.
* Surname Tibings
* First Name Robert
* Other Names NA
* Date of Birth 30 November 1980
Date of Death (if Applicable) NA
* Home Address 35 Shilrey Street Redbank Plains Qld 4301
* Postal Address 35 Shilrey Street Redbank Plains Qld 4301
* Mailing Address 35 Shilrey Street Redbank Plains Qld 4301
Telephone numbers
Home
Mobile [phone]
* Email Address [e-mail]
Spouse Surname Tibings
Spouse First Name Amber
Spouse Date of Birth 15th August 1985
Spouse Address 35 Shilrey Street Redbank Plains Qld 4301
* Tax File Number (TFN) 145 258 546
Australian Business Number (ABN) NA
* Bank Details
BSB 633 000
Account Number 54685296
Account Name RobertTibings
* Occupation Pilot with the Australian Defence Force
Tax Payer Detail Form 2
* Title Mrs.
* Surname Tibings
12