TLAW 303: Taxation Law Assignment - Income Tax Calculations, 2018

This assignment solution addresses four income tax calculation questions based on Australian taxation law for the year ending June 30, 2018. Question 1 calculates income tax payable for various scenarios, including residents, non-residents, and companies with different taxable incomes, ignoring the Medicare levy. Question 2 focuses on the calculation of Medicare levy and Medicare levy surcharge for different taxpayers, considering income thresholds and residency status. Question 3 calculates Rob's taxable pay, income tax, and medical levy, determining his tax refund or payment. Question 4 calculates imputation credit, tax burden on dividends, and total tax payable for an individual receiving dividends and salary, also considering the medical levy. The solution provides detailed calculations and references relevant legislative provisions to determine tax liabilities.

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Taxation Law Application
Student’s Name
Institutional Affiliation

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Question 1;
Australian Tax Office calculation of income tax payable depends with tax residency of the
individual or company in question hence different tax rates apply on residency and non-
residency status of the taxpayer. Ignoring medical levy and medical levy surcharge the below are
the calculation illustration of the income tax payable using tax bracket 2017-2018;
(a) An Australian tax resident earning taxable income of $15000 is ideally exempted from
paying any tax on this mainly because the Australian Tax Office on individual income rates
classifies $15000 as to be between brackets $0-$18200 whose fee payable is nil.
Tax payable = NIL
(b) Australian Tax Office on company tax rates applies the ruling done on Draft Taxation Rule
TR 2017/D7 whereby it defines that income with a base threshold of less than $2million applies
company tax rate of 27.5% on its income as tax payable hence;
Tax payable=$ 15000 * 0.275 = $4125
(c) A tax resident earning $155000 falls under tax bracket $87,001 – $180,000 whose tax is
$19822 plus 37cents for each $1 over $87000, therefore
=Over amount= 155000 – 87000 = $68000 tax payable on this = 68000 * 0.37 = 25160 hence
Total Tax Payable = $19822 + $25160 = $44982
(d) A company with $ 155000 income still forms part of the base rate 27.5% mainly because
the turnover income is still below the threshold of $2milliom for small companies and
$10million for large companies thus;
Taxable Income = $ 155000 * 27.5%= $42625

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(e) A resident earning $255000 is taxed under bracket $180001 and over hence applying 54232
as tax with addition of 45cents on any amount above 180000
Over 180000 = 255000 – 180000 = 75000, hence=75000 * 0.45=$33750
Total Tax Payable = 54232 + 33750 =$87982
(f) A non-resident with a taxable income of $ 255000 applies bracket $180001 and over hence
paying tax of $62685 plus 45cents on every dollar above $180000.
Over=255000 – 180000 = $75000 hence =75000*0.45=$33750 therefore,
Total Tax Payable= 33750 + 62685= $96435
(g) Australian Tax Office on working holiday makers classifies all working holiday visa
income as income earned by a foreign resident citizen for tax purpose. This therefore calculates
tax payable similarly to that of (f) hence; bracket is $180001 and over thus
Over=255000 – 180000 = $75000 hence =75000*0.45=$33750, Saez, Slemrod & Giertz
(2012.Pg.40,) therefore,
=Total Tax Payable = 33750 + 62685= $96435
Question 2;
(a) An Australian resident earning taxable income of $18000 is exempted from contributing
both medical the envy and medical levy surcharge primarily because his salary is below the
90000 thresholds for MLS and below the taxable income threshold for medical levy hence zero
medical levy and medical levy surcharge for this individual earning $18000.
(b) Since the $32000 payable amount is still below the minimum threshold of 34758 for
medical levy Baicker & Levy (2012.Pg.1774) and below 90000 for medical levy surcharge both
levies are therefore deemed to be at zero value.

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(c) The fact that this taxpayer is not an Australian tax resident he is exempted by the law to pay
any of the levy hence his medical levy is zero, and medical levy surcharge is likewise zero.
(e) There is no medical levy or tax on companies since it is an artificial human being hence no
expected Medicare that is expected as benefit thus the whole 2500000 has no levy on it at all. It
only applies to individual citizens since they are beneficiary in case of any need. Therefore there
is zero medical levy and medical levy surcharge on this company income of 2500000.
(f) The medical levy will be 2% of 150000 thus equal $ 3000 he is therefore going to pay the
3000 as medical levy however for medical levy surcharge we are going to pro-rata the period in
which he did not have the health cover.
=366-90= 276 days is the period in which he did not have any health insurance hence his income
is in the threshold of 90001-180000 thus as a single there is MLS of 1%
Medical Levy Surcharge=150000*276/366*1%=$1131.14 and medical levy of $3000.
(g)Although this family has no dependents the, eir income qualifies for medical levy surcharge
and medical tax since it is within the threshold. Hence the need to accumulate both salaries
Total taxable income=110000+75000=185000 hence medical levy=185000*2%=$3700 for
medical levy surcharge it is in tier 1 on family threshold option of bracket 180001-210000 at 1%
rate, thus medical levy surcharge = 185000*1%=$1850
(h) For every child born after the first the income threshold increases by 1500 per child hence
the fact that they have four children, three of them have their income threshold rise by
=1500*3=4500. The medical levy surcharge threshold will be in tier 0 at 0 because it will be at
4500. However, since we are not informed how much they earn, we assume they are in bracket 0
at 90000 and less which of course is 4500.

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Question 3;
Rob Taxable Pay Calculation
For The Year Ending 30Th June 2018
$
Salary 31000
Other Income Bank interest received 1150
Less Allowable Deductions
Special work clothing (450)
Total Taxable Income 31700
2 2% medical levy subscription of Rob will be = 2 %*( 31000+ 1150) = 2% * 32150 = $643
The taxable income of 31700 for Rob is classified in the income tax rate bracket of $18201-
$37000 19c for each $1 over $18200 Saez, Slemrod & Giertz(2012.Pg.40,);
The over portion above 18200 is =31700 less 18200=13500 hence tax payable =
13500*0.19=2565
Therefore Tax pay = 2565
Less Pay As You Go = (2700)
Tax credit = (135)
Add medical levy =$ 643
Rob Total Taxable Pay= $ 508, Rob is therefore expected to declare 135 as the amount to be
refunded as the tax refund, but upon adding up the medical levy, he is expected to pay 508
dollars. We will not account for medical levy surcharge since we are not informed on his health
status, and more so it is not applicable since as a single individual his income is in tier 0
thresholds simply because his income is less than 90000.

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Question 4;
Assuming corporate tax rate is 27.5% we calculate imputation credit on dividends declared and
paid as;
Imputation credit = fully franked dividend=2000+700(50%) franked=2700, hence
Imputation credit= 2700 * 30/70 = 1157.14
Income Declared=fully & 50% franked + UN franked + Imputation credit
Income declared as dividend is therefore= 2700 +2000+157.14=5857.42
Tax burden on dividends = 5857.42 * 27.5%=1610.79
Tax owed on dividends=1610.79-1157.4 = 453.39,
Rickey medical levy=2%*78000=1560
Rickey is an individual tax resident hence his salary of 78000 is subjected into the individual tax
bracket of $37001-$90000 $3572 plus 32.5cents for each 1$ over $37000 Saez, Slemrod &
Giertz (2012.Pg.40,) hence;
=The over 37000 portion=78000-37000=$41000, =41000*0.325=13325
Total Tax payable on income=13325+3572=16897
Since there is tax at source already withheld of 16500, thus the tax payable=16897-16500=$397
Total Tax Payable=Tax on salary plus tax on dividends received plus medical levy therefore;
Total Tax Payable=397+453.39+1560=$2410.9

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References
Baicker, K., & Levy, H. (2012). The insurance value of Medicare. New England Journal of
Medicine, 367(19), 1773-1775.
Saez, E., Slemrod, J., & Giertz, S. H. (2012). The elasticity of taxable income with respect to
marginal tax rates: A critical review. Journal of economic literature, 50(1), 3-50.