Taxation Law: Income Tax and Medicare Levy Calculations for 2018-2019

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TAXATION LAW
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Table of Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................7
Question 3......................................................................................................................................11
Question 4......................................................................................................................................14
References......................................................................................................................................17
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Question 1
Calculate the income tax payable, ignoring the Medicare levy, for the following taxpayers for the
year ended 30 June 2018:
A.
As per the Australian Tax Laws, any resident individual would be exempt from paying tax if his
total income is below the threshold limit of $ 18200. Thus in the given case as the income of the
Australian individual resident is $ 18000 which is below the threshold limit of $ 18200 thus his
tax liability would be NIL as he exempt from paying tax on $ 18000 (ATO, 2019).
B.
In the given case the Australian individual is a Non- resident and the basic exemption limit
threshold does not apply to a non-resident individual thus in the given case the nonresident
Australian individual would be liable to pay tax on the whole amount of $18000 at the rate of
32.5%. Tax liability is calculated as follows:
Particulars Amount
Total Income $18,000
Rate of Tax 32.50%
Tax Payable $5,850.00
Thus from the above calculation the tax payable by Australian Non- resident Individual is $
5850.
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C.
As per the Australian Tax Laws, the tax payable by the Australian Company is at the rate of 30%
of the total income (Assuming the company is not a small company). Thus tax payable is
calculated as:
Thus the total tax payable by the Australian company is $ 5400.
D.
As the income of the Australian Individual is above the basic exemption limit thus he would be
liable to pay tax on the basis of slab rate and which is calculated as follows:
Income Tax Rate Amount
First $18200 NIL Nil
Next $ 18800 19% $ 3,572
Next $ 43000 32.50% $ 13,975
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Particulars Amount
Total Income $18,000
Rate Of Tax 30%
Tax Payable $5.400

Remaining $65000 37% $ 24,050
Total Tax Payable $ 41,597
Thus the total tax payable for the year ended June 2019 by the Australian Individual is $ 41587.
E.
As the person is a Non-resident Individual thus the tax rates applicable to the resident individual
would not be applicable to such person and also he would be eligible for basic exemption limit.
Tax payable by a Non-resident individual would be calculated on the following basis:
Income Tax Rate Amount
First $90000 32.50% $ 29,250
Remaining $55000 37% $ 20,350
Total Tax Payable $ 49,600
Thus the total tax payable by the Non-Resident Australian Individual is $ 49600.
F.
As per the Australian Tax Laws, any Australian company would be liable to pay tax on its total
income at the flat rate of 30% of its total income if it's not a small company (ATO, 2019).
Considering the given company is not a small company the tax payable would be equal to $
43500 ($145000*30%).
G.
As the income of the Australian Individual is above the basic exemption limit thus he would be
liable to pay tax on the basis of slab rate and which is calculated as follows:
Income Tax Rate Amount
First $18200 NIL Nil
Next $ 18800 19% $ 3,572
Next $ 43000 32.50% $ 13,975
Next $90000 37% $ 33,300
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Remaining $ 85000 45% $ 38,250
Total Tax Payable $ 89,097
Thus the total tax payable by the resident individual of Australia for the year ended 30 June 2019
is $ 89097.
H.
As the person is a Non-resident Individual thus the tax rates applicable to a resident individual
would not be applicable to such person and also he would be eligible for basic exemption limit.
Tax payable by a Non-resident individual would be calculated on the following basis:
Income Tax Rate Amount
First $90000 32.50% $ 29,250
Next $90000 37% $ 20,350
Remaining $ 85000 45% $ 38,250
Total Tax Payable $ 87,850
Thus the total tax payable by the non-resident individual as per the above calculations is $
87850.
I.
As per the Australian Tax Laws, any Australian company would be liable to pay tax on its total
income at the flat rate of 30% of its total income if it's not a small company. Considering the
given company is not a small company the tax payable would be equal to $ 79500 ($
265000*30%).
J.
As the turnover of the company is below the threshold limit for the small company i.e. $ 50
million thus it is classified as a small company and tax rate applicable on the same is 27.5%.
Thus the total tax payable by the Australian company categorized as a small company is $5445
($19800 * 27.5%).
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Question 2
Calculate the Medicare levy and Medicare levy surcharge payable for the year ended 30 June
2016 for the following taxpayers:
A.
An Australian Tax Resident who is aged 28 years which has a taxable income of $21335 would
be liable to pay the medical levy of 2% as his income exceeds the threshold limit of $18000 and
thus medical levy payable is $426.7 ($21335 * 2%). The resident individual is not liable to pay
Medicare levy surcharge its base income is above the threshold limit of $ 90000 thus not liable
to pay such surcharge (ATO, 2019).
B.
An Australian resident who is eligible for the senior’s tax offset would not be liable to pay
Medicare Levy as it is assumed that after claiming offset the threshold limit of basic exemption
limit would be achieved thus Medicare Levy would be NIL. On the other hand, the resident
individual would not be liable to pay Medicare levy surcharge as its base income is above the
threshold limit of $90000 thus not liable to pay the surcharge on his total income.
C.
Australian Resident aged 43 years with a taxable income of $ 55000 would be liable to pay the
Medicare levy as the amount exceeds the basic threshold limit for income exemption thus 2%
Medicare levy would have to be paid on $55000 i.e. $1100 ($55000 * 2%). Also, Medicare Levy
Surcharge would not be applicable as the total income is below $90000 and the surcharge is
applicable only if base income is above $90000.
D.
Australian Non-resident who has a taxable income of $185000 is not liable to pay Medicare levy
as the levy of Medicare levy is only on the resident taxpayer of Australia and not on the non-
resident individual. Also, Medicare levy surcharge is not applicable to a non- resident individual,
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so both the Medicare levy and Medicare levy surcharge is not applicable to such Non-resident
Individual. It is also assumed that the individual is not a resident of New Zealand.
E.
As per the Australian Tax Laws, any individual resident having income more than the threshold
limit is liable to pay Medicare levy & Medicare Levy Surcharge. However, the above provision
does not apply to an Australian company thus in the given case Australian company having
taxable income of $2m also would not be eligible to pay Medicare levy & Medicare Levy
Surcharge. Medicare Levy & Medicare Levy Surcharge payable by the Australian company is
NIL.
F.
An Australian Resident, Aged 45 years, with the taxable income of $123800 and holding private
health insurance would not be liable to pay Medical levy surcharge as such levy is not applicable
to residents holding private health insurance. Also, in this case, Medicare Levy would be leviable
as the amount of taxable income exceeds the basic threshold limit not liable to tax at the rate of
2%. Thus Medicare levy payable by Australian resident is $2476 ($123800 * 2%).
G.
An Australian resident with a taxable income of $ 120000 and not having any private health
insurance would be liable to pay both Medicare Levy and Medicare Levy Surcharge as all the
conditions for such levy is satisfied. Thus Medicare Levy and Medicare Levy Surcharge payable
are as follows (ATO, 2019):
Medicare Levy
Income
Medicare Levy
Rate
Medicare Levy
Amount
$120,000 2% $2,400
Medicare Levy Surcharge
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Income
Medicare Levy
Surcharge
Rate(As per
tier 2)
Medicare Levy
Surcharge Amount
$120,000 1.25% $1,500
As the income of the resident lays in Tier 2 for the single threshold so the rate applicable for the
Medicare Levy Surcharge is 1.25%.
H.
Taxable income of resident is $1, 60,000 which also hold private Insurance for 90 days so:
 Medicare Levy on individual = $1,50,000* 2% = $3,000
 Medical Levy surcharge = $1,50,000 * 1.25%*275/365 = $1695.20
Here Medicare levy is calculated on 2% and days calculate of 275 (365-90) Days.
Medical levy surcharge will be calculated on 1.25% as it comes under Tier II. Days are count for
275 days due to 90 days of private health insurance.
E.
Victor and his wife both are Australian resident and their combine Taxable income is 1,
90,000(1, 05,000+85,000). They have no private health insurance so Medicare Levy and
Medicare levy surcharge is computed as follows:
Medicare levy:
Victor = $1, 05,000 * 2% = $ 2,100
Jacky = $ 85,000 * 2% = $ 1,700
Medicare Levy Surcharge:
Victor = (1, 05,000+85,000)*1% = $ 1,900
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Jacky = NIL
F.
Family Minimum Medicare levy surcharge = 180000+ [1500*(4-1) Children] = 1, 84,500
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Question 3
Income tax payable or refundable as per section 4-10 ITAA 1997:
Particulars Amount
Gross Income tax liability (Working Note-1) $2,565
Add: Medical Levy on income ( Working Note- 2) $634
Add: Medical levy surcharge Nil
Less: Income tax offset ( Working Note – 3) $445
Taxable income $2,754
Less: PAYG tax withheld ( Given Information) $2,600
Net Tax payable by Rob $154
As the PAYG tax deducted by the employer is less than the total tax liability of Rob, so from the
above solution Rob is liable to pay the additional amount of $154 as the tax liability (PWC,
2016).
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Working Notes:
Working Notes- 1
Calculations of tax liability of Rob as per ITRA 1986:
Income Tax rate Income tax payable
0 - $ 18,200 0% Nil
From $ 18,201 to $
31,700(Working Note - 4
)
19% $13,500 × 19% = $2,565
Income Tax Payable $2,565
Rob’s Annul income is $ 31700 which is more than $18,200 which is basic exemptions limits so
tax liablitiies of Rob is determined as $ 2,565 ( 13,500*19%).
Working Note – 2
Medicare Levy:
Taxable
Income
Medicare Levy on
Taxable income
Medicare levy surcharge
$ 31,700 $ 31,700 × 2% = $ 634 Nil
 As the basic exemptions limit for Medicare Levy surcharge is $ 90,000. Job’s Medicare Levy
charge is $ 634 which is 2% of net Taxable Income of $ 31700. The surcharge will be
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