Taxation Law: Calculating Income Tax, Medicare Levy, AY 2017

This assignment provides detailed solutions for calculating income tax liabilities, Medicare levy, and Medicare levy surcharge under Australian taxation law for the year ended 30 June 2017. It covers various scenarios including resident and non-resident individuals, companies, and different income levels. The calculations take into account tax rates, income thresholds, franked dividends, PAYG tax, and applicable tax offsets. The assignment uses relevant sections of the ITAA 1997 and ITRA 1986 to determine taxable income and tax payable or refundable in each case study.

Taxation law
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Contents
Introduction......................................................................................................................................3
Question 1........................................................................................................................................4
Question 2........................................................................................................................................7
Question 3......................................................................................................................................10
Question 4......................................................................................................................................13
Conclusion.....................................................................................................................................16
References......................................................................................................................................17
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Introduction
In the present report, various taxation norms that are related to calculation of income tax liability
that can be levied ion case of situation provide herein. The income tax and its ruling are herein
discussed. The medical levy and medical levy surcharge have been considered in respect of
income tax liability in case of various case studies. The law that deals with income tax valuation
has been effectively considered herein.
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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 2017:
(a) An Australian individual who is a resident with a taxable income of $18,000.
In present case, the liability of the Australian individual to pay income tax is related to his
taxable income. There is no taxable liability that can be imposed on his income. The
provision as provide under income tax rules provides that any individual who is earning
income below threshold of $18000 will fall under exemption limits in respect of his liability
to pay income tax (Australian Taxation Office, 2011).
(b) An Australian individual who is a non-resident with a taxable income of $18,000.
The income tax that is to be levied on a non-resident of Australia is to be levied at the rate of
32.5% of his total income therefore total tax that is to be payable is to be calculated as:
=$18,000*32.5
=$5850
(c) An Australian company with a taxable income of $18,000.
The tax rate that is applicable in the present case is 30% wherein the company has been
considered to be not belonging to small business entities. Thus the income tax that is to be
paid is
=$18,000*30%
=$5850
(d) An Australian company with a taxable income of $18,000.
The tax slab that provides for levying of tax rate on different income are herein provided on
which total income tax payable is to be determined :
Income Tax rate Payable income tax
0- 18,200 0% None
418,201-$ 37,000 19% 18,800*19=$3,572
$37,001 to $87,000 32.5% $50,000 × 32.5% = $16,250
$87,001 to $145,000 37% $58,000 × 37% = $21,460
Thus, total income tax to be paid is $3,572+$16,250+$21,460 = $41,282
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(e) An Australian individual who is a non-resident with a taxable income of $145,000.
Income slot Tax rate Income tax to payable
0- 87,00 32.5% $87,000 × 32.5% = $28,275
$87,001- $145,000 37% $58,000 × 37% = $21,460
Thus, income tax that is to be payable is $28,275 + $21,460= $49,735
(f) An Australian company with a taxable income of $145,000.
By assuming that company does not belong to small business enterprise, thus tax to be levied is
at the rate of 30% i.e. $145000*30%= $43,500
(g) An Australian individual who is a resident with a taxable income of $265,000.
Income Rate of tax Income tax to be paid
0 - $18,200 0% None
$18,201 to $37,000 19% $18,800* 19% = $3,572
$37,001 to $87,000 32.5% $50,000 × 32.5% = $16,250
$87,001 to $180,000 37% $93,000 × 37% = $34,410
$180,001 to $265,000 45% $85,000 × 45% = $38,250
Thus, income tax that is to be payable is $3,572 + $16,250 + $34,410+ $38,250= $ $92,482
(h) An Australian individual who is a non-resident with a taxable income of $265,000.
Income Rate of tax Income tax to be paid
0 to $87,000 32.5% $87,000 × 32.5% = $28,275
$87,000 to $180,000 37% $93,000 × 37% = $34,410
$180,001 to $265,000 45% $85,000 × 45% = $38,250
Thus income tax to be payable is $28,275 + $34,410 + $38,250= $1,00,935
(i) Australian individual who is a non-resident with a taxable income of $265,000.
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The tax rate that is to be applicable on $265,000 is 30%. Thus, income tax to be paid is
$79,500 ($265,000 × 30%)
(j) An Australian company with a turnover of 1.3m with a taxable income of $19800.
In the given case, the company has not been considered as small enterprise that tax that will
be levied is 28.5%. Thus, income tax that is to be payable is $19800*28.5%=5643
(Woellner, et.al., 2011).
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Question 2
Calculate the Medicare levy and Medicare levy surcharge payable for the year ended 30 June
2017 for the following taxpayers:
(a) An Australian resident, aged 28 years, with a taxable income of $21,335
As per Australian taxation rules, medical levy, as well as medical surcharge, will not be paid
for income $ 21,655 or less. Thus. In the present case, the medical levy surcharge and
medical levy are to be paid where income is $21,335
(b) An Australian resident, eligible for a Seniors tax offset, with a taxable income of $31,738.
In the present case, the income of Australian resident falls below $ 90,000 on which medical
levy or medical levy surcharge is not to be paid.
(c) An Australian resident, aged 43 years, with a taxable income of $55,000.
The medical levy on income of $55,000* 2% = $1100 but medical levy surcharge on income
of $ 55,000 is nil.
(d) A taxpayer who is not a resident for tax purposes, with a taxable income of $185,000.
As per the provision provided under taxation laws of Australia, medical levy will not be
levied in case of non-resident of Australia. Thus, a non-resident Australian will not be liable
to make any sort of payment in terms of medical levy and medical levy surcharge.
(e) An Australian company with a taxable income of $2m.
Medical levy and medical levy surcharge are applicable to terms citizens but the same cannot
be considered in case of a company according to provisions of Australian taxation laws
(Australian Taxation Office, 2016).
(f) An Australian resident, aged 45 years, with a taxable income of $123,800, holding private
health insurance for the year.
As per the taxation laws of Australia, medical levy will be charged at the rate of 2% on total
income of residents of Australia. If it is private health insurance medical levy surcharge is to
be included under calculation for taxation. Thus, on total annual income of $123,800 medical
levy that is to be levied is at the rate of 2%
=$123,800*2%=$2476
Thus, medical levy is $2476. However, medical levy surcharge is not to be applicable.
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(g) An Australian resident, aged 45 years, with a taxable income of $120,000, and no private
health insurance.
In present situation, medical levy is to be calculated at rate of 2% on total annual income i.e.
120,000 which is
=120000*2% = 2400
Medical levy surcharge is to calculate at the rate of 1.25%. thus, medical levy surcharge is
=$120000*1.25%= $1500.
(h) An Australian resident with a taxable income of $160,000, holding private health insurance
for 90 days of the income year.
The medical levy surcharge is to be applicable at the rate of 1.25%. The medical health
insurance coverage is for a period of 90 days (Australian Taxation Office. 2017). Therefore,
calculation is to be made after considering 275 days of insurance coverage is on $ 160,000
for medical levy is
= $160,000 × 2% = $3,200
Usual Medical levy surcharge 160,000 × 1.25% = $2,000’
In respect of 90days insurance coverage that medical levy surcharge is
= $2,000 × 275/365 = $1506.84
(i) Victor and his wife are Australian residents. Victor has a taxable income of $105,000 and his
wife Jackie a taxable income of $85,000. They have no children and no private health
insurance.
For victor, $105,000 medical levy is $105,000 × 2% = $2,100 and medical levy surcharge
$190,000 × 1% = $1,900
In case of Jackie her income is $ 85,000 thus, no medical levy and no medical levy surcharge is
to be levied.
Note: Medical Levy surcharge that is to be calculated out of total taxable income is
= income of Victor + income of Jackie
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=$105000+85000=$190000
Thus, medical levy and medical levy surcharge are to be calculated on income of Victor.
(j) An Australian couple has four children and no private hospital health insurance. What would
be the family's minimum Medicare levy surcharge threshold?
The medical levy surcharge threshold limit is
=180,000
For every child, after first child, the family threshold is increased by 1,500
Thus, in present case,
=1,500* (4-1) = 1,500*3= $4,500
Thus, minimum Medicare levy surcharge threshold is 180,000 + 4500= $184,500.
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Question 3
You client, Rob, has the following income and deductions for the financial year ended 30 June
2017: salary, $32,000; bank interest received, $150; and allowable deductions for special work
clothing, $450. Rob’s employer has deducted $2600 as PAYG tax from his salary during the
year.
Calculate Rob’s income tax payable or refundable.
Solution
Section 4-15 of ITAA, 1997 provides for taxable income:
I- Taxable income for Rob for 30 June 2017
Particulars Amount
Salary $32,000
Bank
Interest
(+) $150
Clothing
Allowable
deductions
(-) $450
Income to be
taxed
$31,700
II- Taxable liability of Rob as provided under ITRA 1986
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Income Rate of tax to be imposed Payable income tax
0 - $18,200 0% 0
$18,201- $31,700 19% $13,500*19% = $2,565
Payable income tax $2,565
III- Medicare levy
Medicare levy as applicable on income of $31,700
=$31,700*2% = $634.
Thus, medical levy surcharge is nil in case of Rob.
IV- Tax offset as applicable in case of Rob
Income of rob is $31,700 is lesser than $ 37,000. Thus, income tax offset as applicable to income
of rob is $445
V- Payable income tax/ refundable as calculated in accordance with section 4-10 of ITAA,
1997 is –
Particulars Amount
Taxable liability on Income $2,565
Income medical levy (+)$634
Medical levy surcharge (to be added) -
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Income tax offset `(-)$445
$2,745
Withheld PAYG tax (-)$2,600
Tax to be paid by Rob $154
Note: In case PAYG tax that is to be deducted in terms of total tax liability of an employer, in
such a situation Rob will be liable to pay amount of $ 154as taxable liability in addition
(Business.gov.au., 2018).
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Question 4
During the current income year Rafael, a resident taxpayer, has a gross salary of $68,000 (PAYG
tax withheld $15,100), a fully franked dividend of $2,000, an unfranked dividend of $1,000, and
a 60% franked dividend of $900.
There are no deductions. Calculate Rafael’s taxable income and tax payable.
Solution:
I- Under section 4-15 ITAA, 1997 taxable income:
Items Amount
Total salary $68,000
Credit for franking ($2,000*30/70) $857
Divided for full frank $2000
Dividend Non- franked $1000
Frank dividend at 60% $900
Credit for franking
($900*60%*30/70)
$231
Total income to be taxed in case of Rafael $72,988
Working notes:
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Franking credit formula has been implemented in terms of Rafael’s income. The credit is to be
measured by calculating dividend at 60% as to be franked dividend.
II- According to ITRA, 1986 taxable liability in case of Rafael:
Income Rate of tax Payable income tax
0 - $18,200 0% None
$18,201 - $37000 19% $18800 × 19% = $3572
$37,001 - $72,988 32.5% 35,988 × 32.5% = $11,696.10
Thus, income to be paid in case of Rafael is $3572 + $11,696.10=$15,268.10
Income tax to be paid is by Rafael is $15,268.10
Medicare levy:
Income is $72,988. Thus, Medicare levy is $72,988 × 2% = $1,459.76 and medical levy
surcharge is nil in case of Rafael.
Thus, in the present case taxable income is $72,988. Therefore, medical levy is to be calculated
at rate of 2% (Morse & Deutsch, 2016).
Franking tax offset and PAYG tax withheld in case of Rafael:
Tax offset in case of Franking =$857+$231
Tax offset = $1,088
PAYG tax withheld is $15,100.
According to section 4-10 ITAA 1997, income tax to be payable is herein:
Items Amount
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Liability in case income tax on $72,988 $15,268.10
Tax offset franking (-)$1,088
$14,180.10
Medical levy surcharge (+)$1,459.76
$15,639.86
Withheld tax PAYG (-) $15,100
Tax to be paid by ROB $539.86
In case where PAYG tax is to be deduced in terms of employer where his income is less then
total tax liability is to be paid in case of Rafael. Thus, taxable liability that is to be paid in case of
Rafael will be $539.86 (PWC Australia, 2016).
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Conclusion
Thus, it has been observed that all necessary and relevant provisions are to be properly applied in
case of calculating tax that is to be applicable in case of the situations herein provided. The
provisions of Australian Taxation laws are properly implemented in order to calculate taxable
threshold. Franking dividend is to be considered in order to calculate franking dividend and tax
offsets in respective case have been effective evaluated.
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References
 Australian Taxation Office (2011). “Tax basics for small business”, Australian taxation
office for the Commonwealth of Australia, pages 1-68.
 Australian Taxation Office (2018). “Medicare levy calculator”. Available at:
https://www.ato.gov.au/Calculators-and-tools/Host/?
anchor=MedicareLevy&anchor=MedicareLevy&anchor=MedicareLevy/
questions#MedicareLevy/questions[Accessed: 31st January 2018]
 Australian Taxation Office. (2018). Medicare levy. Available at:
https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-surcharge/ [Accessed: 31st
January 2018]
 Business.gov.au. (2018). How is tax calculated? Available at:
https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure/
change-business-structure/sole-trader-to-a-company/difference-between-a-sole-trader-and-a-
company/how-is-tax-calculated [Accessed: 31st January 2018]
 Morse, S. C., & Deutsch, R. (2016). Tax Anti-Avoidance Law in Australia and the United
States.
 PWC Australia, (2016). PwC Tax Rates Summary 2016-17. Available at:
https://www.pwc.com.au/taxtalk/tax-rates-2016.html [Accessed: 31st January 2018]
 Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2011). Australian Taxation
Law Select: legislation and commentary. CCH Australia.
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