Taxation Law Assignment: Income Tax, Medicare Levy Calculations

This taxation law assignment provides comprehensive solutions to various tax-related problems, focusing on income tax and Medicare levy calculations in the Australian context for the 2015-16 income year. The assignment covers scenarios for resident and non-resident individuals, as well as Austral...Read More

TAXATION LAW

Taxation law
Answer-1
(a) In the case of an Individual who is a resident of Australia, where the taxable income is $
15,000, the income tax payable for the income year 2015-16 will be Nil as the Income tax
Rate for the taxable income below $ 18,200 for a resident individual is Nil. Hence, the
individual needs to pay no tax on this income.
(b) In the case of an Individual who is a non-resident of Australia, where the taxable income
is $ 15,000, the income tax payable for the income year 2015-16 will be $ 4,875/- as the
Income tax Rate for the taxable income below $ 80,000 for non- resident individual is
32.5c per $. Hence, the individual needs to the following tax on this income:
Taxable Income X 32.5 c for each dollar
= $15000 * 32.5c = 487500 c that is $ 4875 .
(c) In the case of an Australian Company, where the taxable income is $ 15,000, the income
tax payable for the income year 2015-16 will be $ 4500 as the Income tax Rate for the
taxable income of the company is 30% of the taxable income. Hence, the company needs
to the following tax on this income:
Taxable Income X 30%
= $15000 * 30% = $4500
(d) In case of an Individual who is a resident of Australia, where the taxable income is $
1,55,000, the income tax payable for the income year 2015-16 will be $ 45,297 as the
Income tax Rate for the taxable income between $ 80,000 to $ 1,80,000 for resident
individual is $ 17,547 plus 37c for each $ above $ 80,000.
Hence, the individual needs to pay the following tax on this income:
$17547 plus 37 c for each dollar above $ 80,000
= $ 17547 + $(155000-80000) * 37c = $ 45,297.
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Taxation law
(e) In case of an Individual who is a non-resident of Australia, where the taxable income is $
1,55,000, the income tax payable for the income year 2015-16 will be $ 53,750 as the
Income tax Rate for the taxable income between $ 80,001 to $ 1,80,000 for non-resident
individual is $ 26,000 plus 37c for each $ above $ 80,000.
Hence, the individual needs to pay the following tax on this income:
$26,000 plus 37 c for each dollar above $ 80,000
= $ 26,000 + $(155000-80000) * 37c = $ 53,750 .
(f) In the case of an Australian Company, where the taxable income is $ 1,55,000, the
income tax payable for the income year 2015-16 will be $ 46,500 as the Income tax Rate
for the taxable income of the company is 30% of the taxable income. Hence, the
company needs to the following tax on this income:
Taxable Income X 30%
= $1, 55,000 * 30% = $46,500
(g) In the case of an Individual who is a resident of Australia, where the taxable income is $
2,55,000, the income tax payable for the income year 2015-16 will be $ 89,797 as the
Income tax Rate for the taxable income above $ 1,80,000 for a resident individual is $
54,547 plus 47c for each $ above $ 1,80,000.
Hence, the individual needs to pay the following tax on this income:
$54,547 plus 47 c for each dollar above $ 1,80,000
= $ 54547 + $(255000-180000) * 47c = $ 89,797 .
(h) In the case of an Individual who is a non-resident of Australia, where the taxable income
is $ 2,55,000, the income tax payable for the income year 2015-16 will be $ 96,750 as the
Income tax Rate for the taxable income above $ 1,80,000 for a non-resident individual is
$ 63,000 plus 45c for each $ above $ 1,80,000.
Hence, the individual needs to pay the following tax on this income:
$63,000 plus 45 c for each dollar above $ 1,80,000
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Taxation law
= $ 63,000 + $(255000-180000) * 45c = $ 96,750 .
(i) In the case of an Australian Company, where the taxable income is $ 2,55,000, the
income tax payable for the income year 2015-16 will be $ 76,500 as the Income tax Rate
for the taxable income of the company is 30% of the taxable income. Hence, the
company needs to the following tax on this income:
Taxable Income X 30%
= $2,55,000 * 30% = $76,500
(j) In the case of an Australian Company qualified as a “small business entity”, where the
taxable income is $ 100, the income tax payable for the income year 2015-16 will be $
76,500 as the Income tax Rate for the taxable income of the company is 28.5% of the
taxable income. Hence, the company needs to the following tax on this income:
Taxable Income X 28.5%
= $100 * 28.5% = $28.5
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Taxation law
Answer-2
(a) In the case of an Individual aged 25 years who is a resident of Australia, where the
taxable income is $ 18,000, the Medicare Levy for the income year 2015-16 will be Nil
as the Medicare levy Rate is 2% of individual’s taxable income if it exceeds the threshold
limit for a resident individual.
Medicare Levy Surcharge, in this case, will be Nil as the taxable income is below $
90000.
(b) In case of an Individual who is a resident of Australia and eligible for a Senior Tax offset,
where the taxable income is $ 32,000, the Medicare Levy for the income year 2015-16
will be $ Nil as the Medicare levy Rate for the individuals who qualify for the Senior
Australian and Pensioner Tax Offset is below tax up to a taxable income of $ 33,044.
Medicare Levy Surcharge, in this case, will be Nil as the taxable income is below $
90000.
(c) In the case of an Individual aged 45 years who is a resident of Australia, where the
taxable income is $ 45,000, the Medicare Levy for the income year 2015-16 will be $ 900
as the Medicare levy Rate is 2% of individual’s taxable income for a resident individual.
Medicare Levy Surcharge, in this case, will be Nil as the taxable income is below $
90000.
(d) In this case, the taxpayer who is a non-resident of Australia for tax purposes and has a
taxable income of $ 45000, there will be no Medicare levy and Medicare levy surcharge
as the same is exempt for non-residents as per the tax laws and provisions (Renton,
2005).
(e) Australian Company with taxable income of $ 25,00,000 does not need to pay Medicare
levy and Medicare levy surcharge as these are applicable for individuals only (Sadiq et.
al, 2014).
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Taxation law
(f) In the case of an Individual aged 45 years who is a resident of Australia, where the
taxable income is $ 1,10,000, the Medicare Levy for the income year 2015-16 will be $
2200 as the Medicare levy Rate is 2% of individual’s taxable income for a resident
individual whose taxable income is above the threshold limit.
In cases where the individuals have private health cover, Medicare Levy charge is not to
be paid, hence here it will be Nil.
(g) In the case of an Individual aged 45 years who is a resident of Australia, where the
taxable income is $ 1,10,000, the Medicare Levy for the income year 2015-16 will be $
2200 as the Medicare levy Rate is 2% of individual’s taxable income for a resident
individual whose taxable income is above the threshold limit.
Medicare Levy Surcharge, in this case, will be $1375 as the taxable income is between $
1, 05,001 and $ 1, 40,000 where the rate of surcharge applicable is 1.25%. Hence, MLS
will be $1, 10,000 * 1.25%= $ 1375 as there is no private health insurance cover.
(h) In the case of an Individual who is a resident of Australia, where the taxable income is $
1, 50,000, the Medicare Levy for the income year 2015-16 will be $ 3000 as the
Medicare levy Rate is 2% of individual’s taxable income for a resident individual whose
taxable income is above the threshold limit.
Medicare Levy Surcharge, in this case, will be $2250 as the taxable income is above $ 1,
40,000 where the rate of surcharge applicable is 1.5%. Hence, MLS will be $1, 50,000 *
1.5%= $ 2250 as there is no private health insurance coverage for the full year and its for
only 90 days.
(i) In this case, Victor and his wife have a combined taxable income of $1,85,000 hence the
Medicare Levy for the income year 2015-16 will be $ 3700 as the Medicare levy Rate is
2% of individual’s taxable income for resident individuals whose taxable income is above
the threshold limit.
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Taxation law
Medicare Levy Surcharge, in this case, will be $1850 as the taxable income is above $
1,80,000 where the rate of surcharge applicable is 1% up to $ 2,10,000. Hence, MLS will
be $1,85,000 * 1%= $ 1850 as there is no private health insurance cover.
(j) In the given case, the minimum threshold for Medicare Levy of 2% is $ 48,214.
The minimum threshold for a family for Medicare Levy Surcharge is $ 1,80,000 @ 1%
thereon and an additional levy is to be paid at the rate of $1500 per child after the first
child.
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Taxation law
Answer-3
Calculation of Income Tax Payable/ Refundable:
As per the relevant provisions of ITAA 1997, the taxable income is to be calculated by adding all
types of incomes and then deducting there from the non taxable income and other deductions that
are allowable under the ITAA 1997 from the calculated taxable income (Pratt & Kulsrud, 2013).
On this calculated taxable income, income tax is calculated as per the rates applicable in the
given case. Other than the basic income tax, other rates and taxes such as Medicare Levy ,
Medicare Levy Surcharge, etc are also calculated (Nethercott, 2013). Following is the calculation
of Taxable income and Income Tax Payable in the given case :
Particulars Amount
Gross Salary $ 32,000
Less :Allowable Deductions for special work clothing $ 450
Net Salary $ 31,550
Add :
Bank Interest $ 150
Total Taxable Income $ 31,700
Tax Payable on Total Taxable Income ($31700-18200)*19c/100- $ 2,565
Add : Medicare levy (2% of $ 31,700) - $ 634
Total Tax $ 3,199
PAYG Tax - $ 2,600
Tax Payable - $ 599
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Taxation law
Answer- 4
Calculation of Income Tax Payable/ Refundable:
As per the relevant provisions of ITAA 1997, the taxable income is to be calculated by adding all
types of incomes and then deducting there from the non taxable income and other deductions that
are allowable under the ITAA 1997 from the calculated taxable income (Kobestky, 2005).
On this calculated taxable income, income tax is calculated as per the rates applicable in the
given case. Other than the basic income tax, other rates and taxes such as Medicare Levy,
Medicare Levy Surcharge, etc are also calculated. Following is the calculation of Taxable
income and Income Tax Payable in the given case :
Particulars Amount
Gross Salary $ 68,000
Add : Other Incomes
Franked Dividend (note-a) $ 2,857
Unfranked Dividend $ 1,000
Partially Franked Dividend (note-b) $ 1,131
Total Taxable Income $ 72,988
Tax Payable on Total Taxable Income $ 15,268
Add : Medicare levy (2% of $ 31,700) - $ 1,460
Total Tax $ 16,728
Less :
Franked Credit ($ 857 +$ 231) $ 1,088
PAYG Tax - $ 15,100
Tax Payable - $ 540
Hence, the tax payable by Rafael is $ 540.
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Taxation law
Working Notes-
a. Calculation of Franked Credits= Dividend Amount /(1- tax rate))- Dividend Amount
=$2000/ (1-0.30))-$2000 = $ 857
Hence the total dividend grossed up including franked credits is $2000 +$857= $2857
b. In case of 60% franked dividend, the total dividend will be –
(Dividend Amount /(1- tax rate))- Dividend Amount)*60%
=($900/ (1-0.30))-$900) * 60% = $ 231 (approx.)
Hence the total dividend grossed up including franked credits is $900 +$231= $1131
c. The tax rate has been assumed at 30% at which company has taxed the dividends.
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Taxation law
References
Kobestky, M. (2005). Income Tax: Text, Materials and Essential Cases. Sydney: The Federation
Press
Nethercott, L., Richardson, G, & Devos,K. (2013). Australian Taxation Study Manual , Sydney.
Pratt, J.W & Kulsrud, W.N. (2013). Federal Taxation. Oxford university press.
Renton N.E, (2005) Income Tax and Investment (2nd edition). Fishpond Australia
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan,S, Krever, R, Obst, W, & Ting, A.(2014).
Principles of Taxation Law ,Sydney.
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