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					Taxation
          Taxation In Australia
• Australia is a Federation of States
• Pre WW1 income tax was levied by the individual
  states
• During WW1 the federal government first levied
  Income Tax
• Between WW1 & WW2 uniform income tax was
  developed but still gathered by the states
• 1942 due to national emergency states handed
  income tax powers to federal government
• After WW2 the Federal Govt refused to hand
  powers back to the states
          Taxation In Australia
• All Levels of government raise taxation.
  – Local Councils
  – State Governments
  – Federal Governments
           Local Government
• Most of the tax raised is by the way of rates
• Other taxes may be in the way of levies & fees
                State Taxes
• Payroll Tax
• Tax levied on wages paid
• Payable where yearly payroll is greater than
  $600 000
• Payroll Tax Rate = 6%
           Payroll Tax - Wages
• Employee or contractor?
• Provisions were introduced to tax contracts
  where the contractor works and operates
  exactly like an employee.
• ATO has guidelines to determine their own
  status as a contractor, these guidelines only
  apply to 'Pay As You Go (PAYG)’
               Land Tax

• Every State in Australia has Land Tax
• Land Tax is levied in NSW as follows
  –Property owned at midnight 31st
   December
  –Principle place of residence is exempt
  –Land used as farms are exempt
              NSW Land Tax
• Tax is payable on aggregated land value
  owned above the threshold x $0.016
• Threshold in 2009 = $368 000
• Land Value = $500 000 less threshold
                 $368 000
                 $132 000 x $0.016
• Land Tax Pay $2112
            Other State Taxes
• Stamp Duties on Transfer of Property
• Mortgage Duties
• Vehicle Registration & Transfer
                 Federal Taxes
•   Income Tax
•   Company Tax
•   Capital Gains Tax
•   Fringe Benefits Tax
•   GST
             Fringe Benefit Tax
•   Tax on non cash benefits given to employees
•   Paid by employer
•   Is a separate tax to income tax
•   FBT Tax year 31st March
•   FBT Rate = 46.5% and levied on grossed up
    rate
            Fringe Benefits Tax
• May include such items such as
  – allows an employee to use a work car for private
    purposes
  – gives an employee a cheap loan
  – pays an employee’s gym membership
  – provides entertainment by the way of free tickets
    to concerts
  – reimburses an expense incurred by an employee,
    such as school fees, and
  – gives benefits under a salary sacrifice
    arrangement with an employee.
           Amount of FBT Tax

• If GST is claimed grossing up multiplier is
  2.067
• Employer pays for Private Health Insurance of
  employee valued at $3000
• Taxable FBT Amount $3000 x 2.067 = $6201
• FBT Tax Payable $6201 x 46.5% = 2883.47
• Benefit Payable is now FULLY tax deductible
  from Income Tax
                 Vehicles FBT
• Payable where car is available for Private use.
• The following types of vehicles (including four-
  wheel drive vehicles) are cars:
  – motor cars, station wagons, panel vans and
    utilities (excluding panel vans and utilities
    designed to carry a load of one tonne or more)
  – all other goods-carrying vehicles designed to carry
    less than one tonne, and
  – all other passenger-carrying vehicles designed to
    carry fewer than nine occupants
                      Vehicle FBT
• Taxable FBT amount =

Value of Vehicle x Statutory % X Days Available
                       365
Statutory % is determined by distance travelled
   <15000km          =       26%
   15001 to 24999km =        20%
   25000 to 40000km =        11%
   > 40000km          =      7%
                     Vehicle FBT
• A Toyota Camry is provided valued at $35 000
1. Travels 13000km for the year
   $40 000 x 26% x 1        = $10 400 x 2.067 (Grossing)
                            = $21 496 x 46.5%
                            = $9996.01
2. Travels 43000km for the year
   $40 000 x 7% x 1 = $2800x 2.067 (Grossing)
                            = $5787.60 x 46.5%
                            = $2691.23
3. Travels 27000km for the year
   $40 000 x 11% x 1        = $4400x 2.067 (Grossing)
                            = $9094.80 x 46.5%
                            = $4229.08
Note All cost related to the vehicle private or business
   are now tax deductible incl. depreciation.
             Capital Gains Tax
• Capital gains tax (CGT) is the tax you pay on
  any capital gain you make on the sale of an
  assett
• Capital Gain/Loss is basically the difference in
  purchase and sale price
• It is not a separate tax, merely a component of
  your income tax.
• You are taxed on your net capital gain at your
  marginal tax rate
               CGT ASSETTS
• real estate – for example, a holiday home
• shares in a company
• units in a unit trust or managed investment
  fund
• collectables – for example, jewellery, and
• personal use assets – for example, furniture.
              Capital Gains Tax
• Capital Gain/Loss = Sale Price – Cost Base

• Cost Base includes
  – The Original Purchase Price
  – Items that are not immediately tax deductable
     • Agent Fees
     • Solicitor Fees
     • Council Rates for Holiday House – note if it is an
       investment property earning income, rates would be
              Capital Gains Tax
• It is not a tax in itself but forms part of your
  assessable income tax
• Assessable amount is subject to discounts if
  kept for 12 months
   – Individuals   50 % discount
   – Trusts        331/3 % discount
   – Companies     0% Discount
    Capital Gains Tax - Individual
• House Purchased in 2001 for $300 000
• House Sold in 2008 for $700 000
  – Cost Base =
    $300 000 Purchase Price
  – $ 15 000 Agent Fee on Sale
  – $ 5 000 Legal Fees
  – $ 15 000 Stamp Duty
  Cost Base = $335 000
• Capital Gain = $700 000 - $335 000 = $365 000
• Assessable Income = $365 000 x 50%
                      = $182 500
    Capital Gains Tax - Company
• House Purchased in 2001 for $300 000
• House Sold in 2008 for $700 000
  – Cost Base =
    $300 000 Purchase Price
  – $ 15 000 Agent Fee on Sale
  – $ 5 000 Legal Fees
  – $ 15 000 Stamp Duty
  Cost Base = $335 000
• Capital Gain = $700 000 - $335 000 = $365 000
• Assessable Income = $365 000 (No discount)
    Capital Gains Tax - Exemption
• Principal Place of residence
• an asset you acquired before 20 September
  1985
• cars, motorcycles and similar vehicles
• compensation you received for personal injury
• a personal use asset – for example, items such
  as boats, furniture, electrical goods
                Income Tax

• Progressive Tax levied on assessable income
• Income is “World Wide Assessable Income”
• Assessable Income = Gross Income –
                       Allowable Deductions
                    Income
• Income will include worldwide source of
  – Salary & Wages
  – Payments made under contract
  – Bank Interest
  – Dividends
  – Rent Received
  – (There are many other sources of Income)
                 Deductions
• Any cost incurred in running your business
• Items that are not allowable
  – Fines
  – Capital Costs (These must be depreciated)
  – Personal Items (E.g. Non Protective Clothing)
  Taxable Income 08-09                        Tax Payable
       $0 -$6 000                                 Nil
    $6 001 - $34 000                  15c for each $1 over $6,000
    $34 000 - $80 000           $4,200 plus 30c for each $1 over $34,000
   $80,001 – $180,000          $18,000 plus 40c for each $1 over $80,000
   $180,001 and over           $58,000 plus 45c for each $1 over $180,000



Determine Assessable Income and Tax Payable for Individual

   Money Received                          Costs for the Year
Contract Income   $95 000         Fuel for work Vehicle     $ 3 000
Bank Interest      $1 500         Income Insurance          $ 2 500
Income Protection  $3 700         Materials                 $15 000
Rent Received      $9 500         Workcover Licensing       $ 120
                                  Work Cover Fine           $ 1 500
                                  Mortgage Payments         $12 000 ($2500 Int)
                                  Ute Purchase 1/7/xxxx     $35 000
                         Determine Assessable Income
              Income                              Cost for the Year
Contract Income     $    95,000.00     Fuel                    $      3,000.00
Bank Interest       $     1,500.00     Income Insurance        $      2,500.00
Income Protection   $     3,700.00     Materials               $    15,000.00
Rent Received       $     9,500.00     Licenses                $        120.00
                                       Fines                   Not Allowable
Gross Income       $    109,700.00     Mortgage Payments       Interest Only
                                                                         $4,500
                                       Ute                     Depreciation
Answer to Weekly Review
                         Diminishing Value
           Opening            Effective     Depreciation   Depreciated
            Vaue                 Life        Amount           Value
Year 1   $ 45,000.00     x   (1.5/ 7 ) =   $ 9,642.86      $ 35,357.14
Year 2   $ 35,357.14     x   (1.5/ 7 ) =   $ 7,576.53      $ 27,780.61
Year 3   $ 27,780.61     x   (1.5/ 7 ) =   $ 5,952.99      $ 21,827.62
Year 4   $ 21,827.62     x   (1.5/ 7 ) =   $ 4,677.35      $ 17,150.28
Year 5   $ 17,150.28     x   (1.5/ 7 ) =   $ 3,675.06      $ 13,475.22
Year 6   $ 13,475.22     x   (1.5/ 7 ) =   $ 2,887.55      $ 10,587.67
Year 7   $ 10,587.67     x   (1.5/ 7 ) =   $ 2,268.79      $ 8,318.88

                         Prime Cost Method
             Opening          Effective     Depreciation   Depreciated
              Vaue               Life        Amount           Value
Year 1   $   45,000.00   x   (1/    7 )=   $   6,428.57    $ 38,571.43
Year 2   $   38,571.43   x   (1/    7 )=   $   6,428.57    $ 32,142.86
Year 3   $   32,142.86   x   (1/    7 )=   $   6,428.57    $ 25,714.29
Year 4   $   25,714.29   x   (1/    7 )=   $   6,428.57    $ 19,285.71
Year 5   $   19,285.71   x   (1/    7 )=   $   6,428.57    $ 12,857.14
Year 6   $   12,857.14   x   (1/    7 )=   $   6,428.57    $ 6,428.57
Year 7   $    6,428.57   x   (1/    7 )=   $   6,428.57    $       -
          Depreciation Scedule
                    Straight Line Method
              Opening   Effective Depreciation   Depreciated
               Vaue        Life     Amount          Value
Year 1    $   45,000.00        15 $ 2,666.67     $ 42,333.33
Year 2    $   42,333.33        15 $ 2,666.67     $ 39,666.67
Year 3    $   39,666.67        15 $ 2,666.67     $ 37,000.00
Year 4    $   37,000.00        15 $ 2,666.67     $ 34,333.33
Year 5    $   34,333.33        15 $ 2,666.67     $ 31,666.67
Year 6    $   31,666.67        15 $ 2,666.67     $ 29,000.00
Year 7    $   29,000.00        15 $ 2,666.67     $ 26,333.33
Year 8    $   26,333.33        15 $ 2,666.67     $ 23,666.67
Year 9    $   23,666.67        15 $ 2,666.67     $ 21,000.00
Year 10   $   21,000.00        15 $ 2,666.67     $ 18,333.33
Year 11   $   18,333.33        15 $ 2,666.67     $ 15,666.67
Year 12   $   15,666.67        15 $ 2,666.67     $ 13,000.00
Year 13   $   13,000.00        15 $ 2,666.67     $ 10,333.33
Year 14   $   10,333.33        15 $ 2,666.67     $ 7,666.67
Year 15   $    7,666.67        15 $ 2,666.67     $ 5,000.00
                     Determine Assessable Income
              Income                         Cost for the Year
Contract Income    $ 95,000.00     Fuel                   $    3,000.00
Bank Interest      $ 1,500.00      Income Insurance       $    2,500.00
Income Protection $ 3,700.00       Materials              $ 15,000.00
Rent Received      $ 9,500.00      Licenses               $      120.00
                                   Fines                  Not Allowable
Gross Income       $ 109,700.00    Mortgage Payments $         2,500.00
                                                                  $4,500
                                   Ute                    $    9,642.86

                                    Gross Deductions      $   37,262.86
  Taxable Income 08-09                            Tax Payable
       $0 -$6 000                                      Nil
    $6 001 - $34 000                       15c for each $1 over $6,000
    $34 000 - $80 000              $4,200 plus 30c for each $1 over $34,000
   $80,001 – $180,000              $18,000 plus 40c for each $1 over $80,000
   $180,001 and over              $58,000 plus 45c for each $1 over $180,000



Assessable Income           = $109 700 - $37 262.86
                            = $72 437.14

Tax Payable         = $4200 + ($72 437.14 - $34 000) x $0.30
                    = $4200 + $11 531.14
                    = $15 731.14

Note – Partners pay taxes as individuals
• COMPANY TAX
   Companies are taxed at a flat rate of 30% with no tax free
   threshold

Determine Assessable Income and Tax Payable for Individual

   Money Received                          Costs for the Year
Contract Income   $95 000         Fuel for work Vehicle     $ 3 000
Bank Interest      $1 500         Income Insurance          $ 2 500
Income Protection  $3 700         Materials                 $15 000
Rent Received      $9 500         Workcover Licensing       $ 120
                                  Work Cover Fine           $ 1 500
                                  Mortgage Payments         $12 000 ($2500 Int)
                                  Ute Purchase 1/7/xxxx     $35 000
                         Determine Assessable Income
              Income                              Cost for the Year
Contract Income     $    95,000.00     Fuel                    $      3,000.00
Bank Interest       $     1,500.00     Income Insurance        $      2,500.00
Income Protection   $     3,700.00     Materials               $    15,000.00
Rent Received       $     9,500.00     Licenses                $        120.00
                                       Fines                   Not Allowable
Gross Income       $    109,700.00     Mortgage Payments       Interest Only
                                                                         $4,500
                                       Ute                     Depreciation
Answer to Weekly Review
                         Diminishing Value
           Opening            Effective     Depreciation   Depreciated
            Vaue                 Life        Amount           Value
Year 1   $ 45,000.00     x   (1.5/ 7 ) =   $ 9,642.86      $ 35,357.14
Year 2   $ 35,357.14     x   (1.5/ 7 ) =   $ 7,576.53      $ 27,780.61
Year 3   $ 27,780.61     x   (1.5/ 7 ) =   $ 5,952.99      $ 21,827.62
Year 4   $ 21,827.62     x   (1.5/ 7 ) =   $ 4,677.35      $ 17,150.28
Year 5   $ 17,150.28     x   (1.5/ 7 ) =   $ 3,675.06      $ 13,475.22
Year 6   $ 13,475.22     x   (1.5/ 7 ) =   $ 2,887.55      $ 10,587.67
Year 7   $ 10,587.67     x   (1.5/ 7 ) =   $ 2,268.79      $ 8,318.88

                         Prime Cost Method
             Opening          Effective     Depreciation   Depreciated
              Vaue               Life        Amount           Value
Year 1   $   45,000.00   x   (1/    7 )=   $   6,428.57    $ 38,571.43
Year 2   $   38,571.43   x   (1/    7 )=   $   6,428.57    $ 32,142.86
Year 3   $   32,142.86   x   (1/    7 )=   $   6,428.57    $ 25,714.29
Year 4   $   25,714.29   x   (1/    7 )=   $   6,428.57    $ 19,285.71
Year 5   $   19,285.71   x   (1/    7 )=   $   6,428.57    $ 12,857.14
Year 6   $   12,857.14   x   (1/    7 )=   $   6,428.57    $ 6,428.57
Year 7   $    6,428.57   x   (1/    7 )=   $   6,428.57    $       -
          Depreciation Scedule
                    Straight Line Method
              Opening   Effective Depreciation   Depreciated
               Vaue        Life     Amount          Value
Year 1    $   45,000.00        15 $ 2,666.67     $ 42,333.33
Year 2    $   42,333.33        15 $ 2,666.67     $ 39,666.67
Year 3    $   39,666.67        15 $ 2,666.67     $ 37,000.00
Year 4    $   37,000.00        15 $ 2,666.67     $ 34,333.33
Year 5    $   34,333.33        15 $ 2,666.67     $ 31,666.67
Year 6    $   31,666.67        15 $ 2,666.67     $ 29,000.00
Year 7    $   29,000.00        15 $ 2,666.67     $ 26,333.33
Year 8    $   26,333.33        15 $ 2,666.67     $ 23,666.67
Year 9    $   23,666.67        15 $ 2,666.67     $ 21,000.00
Year 10   $   21,000.00        15 $ 2,666.67     $ 18,333.33
Year 11   $   18,333.33        15 $ 2,666.67     $ 15,666.67
Year 12   $   15,666.67        15 $ 2,666.67     $ 13,000.00
Year 13   $   13,000.00        15 $ 2,666.67     $ 10,333.33
Year 14   $   10,333.33        15 $ 2,666.67     $ 7,666.67
Year 15   $    7,666.67        15 $ 2,666.67     $ 5,000.00
                     Determine Assessable Income
              Income                         Cost for the Year
Contract Income    $ 95,000.00     Fuel                   $    3,000.00
Bank Interest      $ 1,500.00      Income Insurance       $    2,500.00
Income Protection $ 3,700.00       Materials              $ 15,000.00
Rent Received      $ 9,500.00      Licenses               $      120.00
                                   Fines                  Not Allowable
Gross Income       $ 109,700.00    Mortgage Payments $         2,500.00
                                                                  $4,500
                                   Ute                    $    9,642.86

                                    Gross Deductions      $   37,262.86
Assessable Income        = $109 700 - $37 262.86
                         = $72 437.14

Tax Payable      = $72 437.14 x 30%
                 = $21731.14


Compare Against Individual

Tax Payable      = $4200 + ($72 437.14 - $34 000) x $0.30
                 = $4200 + $11 531.14
                 = $15 731.14
          Simplified Depreciation Rules
•immediately write off most depreciating assets costing less than $1,000 each (low-
cost assets)

•pool in a general small business pool and deduct at the rate of 30% most other
depreciating assets with an effective life of less than 25 years, such as motor
vehicles and computers

•pool in a long-life small business pool and deduct at the rate of 5% most
depreciating assets with an effective life of 25 years or more, such as wharves and
cement silos,

•deduct most newly acquired assets at either 15% or 2.5% in the first year,
regardless of when they were acquired during that year.
        The Simple Tax System?
• The tax system that was introduced 1st July
  2000
• GST Introduced
• Australia Business Numbers introduced
• PPS Tax repealed
• Group Tax replaced with PAYG witholding
Australian Business Number (ABN)
• Required for every business registered for the
  GST. Sole Trader, Partnerships & Companies
• Payments to business without ABN require
  48.5% to be withheld.
• Must be quoted on “TAX INVOICES”
• If you have greater than $50 000 turnover you
  must register for the GST
     Tax Invoices less than $1000
• Tax Invoices must be issued for sales > $82.50
  GST Inclusive (2009)
• the words ‘tax invoice’ stated prominently
• the name of the supplier
• the ABN of the supplier
• the date of issue of the tax invoice
• a brief description of the goods or services
  sold, and
• the total price of the sales (including GST).
    Tax Invoices greater than $1000
• the words ‘tax invoice’ stated prominently
• the name of the supplier
• the ABN of the supplier
• the name of the recipient
• the address or ABN of the recipient
• the date of issue of the tax invoice
• the quantity of the goods or the extent of the
  services sold
• a brief description of the things sold, and
• the total price of the sale (including GST
      Recipient Created Tax Invoice
                 (RCPI)
• What is a recipient created tax invoice?
• If a business makes a sale, it is required to issue a tax invoice
  to the purchaser, for the sale, within 28 days of it being
  requested.
• However, in some situations, the price of goods or services is
  calculated by the purchaser and not the seller (for example, a
  motor vehicle dealer who accepts a trade-in vehicle and
  calculates the selling price once they have assessed the value
  of the vehicle).
• In certain situations, the purchaser is able to issue a tax
  invoice to the seller once a price has been worked out. This
  kind of tax invoice is referred to as a recipient created tax
  invoice (RCTI).
 Pay as You Go (PAYG) Witholding
• Method by which wages & salary earners pay
  tax
• Employer deducts from gross pay from
  employees at prescribed rates
 Pay As You Go (PAYG) Instalments
• System for reporting and paying tax
• This is where the business can report & pay
  – Tax withheld from employees
  – An estimate of the companies accrued income tax
  – GST Collected
  – Any other taxes collected or witheld
      Goods & Service Tax (GST)
• The Goods and Services Tax (GST) in Australia
  is a Value Added Tax (VAT) on the supply of
  goods and services in Australia.

  It was introduced by the Federal Government
  with the A New Tax System (Goods and
  Services Tax) Act 1999, taking effect from July
  1 2000. The basic premise of the new tax was
  to broaden the tax base, which was heavily
  biased toward the provision of services
     Business Activity Statement
• Form submitted to the ATO to report tax
  obligations
• Including
  – GST
  – PAYGW
  – PAYGI
  – Wine Equalization Tax (WET) &
  – Luxury Car Tax (LCT)
 Business Activity Statement (BAS)
• Everyone registered for the GST must
  complete
• If your turnover is less than $20 million you
  can lodge BAS quarterly
• If your turnover is less than $1 million you can
  use the Cash Accounting Method
                            BAS Exercise
  Income (GST Inclusive)             Costs Incurred                  Employee Wages
     1/01/2009 $ 6,000.00   Parking Permit     $     32.00   Amount Paid       $ 15,000.00
    15/01/2009 $ 3,562.00   postage            $      1.30   Tax Withheld      $ 5,000.00
    29/01/2009 $ 8,000.00   Pay Bunnings       $ 1,250.00
    12/02/2009 $ 4,500.00   stationary         $     62.35
    26/02/2009 $ 6,000.00   Postage            $     47.97
    12/03/2009 $ 3,200.00   tolls              $    160.00
    26/03/2009 $ 8,000.00   tolls              $     80.00
                            computer           $ 1,500.00
Income        $ 39,262.00   USB Drive          $     16.00
                            USB Drive          $     16.00
                            tolls              $     80.00
                            Parking            $      8.00
                            Drop Saw           $ 1,250.00
                            Tools              $     78.38
                            tolls              $     80.00
                            Materials          $    250.00
                            Subcontract
                            Carpenter          $ 2,500.00

                            Total Expenses    $ 7,412.00
 Gross Sales

Does it
include GST?




   Income (GST Inclusive)
      1/01/2009 $ 6,000.00
     15/01/2009 $ 3,562.00
     29/01/2009 $ 8,000.00
     12/02/2009 $ 4,500.00
     26/02/2009 $ 6,000.00
     12/03/2009 $ 3,200.00
     26/03/2009 $ 8,000.00

Income         $ 39,262.00
         Costs Incurred
Parking Permit     $     32.00
postage            $      1.30
Pay Bunnings       $ 1,250.00
stationary         $     62.35
Postage            $     47.97
tolls              $    160.00
tolls              $     80.00
computer           $ 1,500.00
USB Drive          $     16.00
USB Drive          $     16.00
tolls              $     80.00
Parking            $      8.00
Drop Saw           $ 1,250.00
Tools              $     78.38
tolls              $     80.00
Materials          $    250.00
Subcontract
Carpenter          $ 2,500.00

Total Expenses    $ 7,412.00
                                 Capital Purchases – Purchases that
                                 you are required to depreciate.
                                 Generally assets greater than $1000
         Costs Incurred
Parking Permit     $     32.00
postage            $      1.30
Pay Bunnings       $ 1,250.00
stationary         $     62.35
Postage            $     47.97
tolls              $    160.00
tolls              $     80.00
computer           $ 1,500.00
USB Drive          $     16.00
USB Drive          $     16.00
tolls              $     80.00
Parking            $      8.00
Drop Saw           $ 1,250.00
Tools              $     78.38
tolls              $     80.00
Materials          $    250.00
Subcontract
Carpenter          $ 2,500.00

Total Expenses    $ 7,412.00     Non Capital Purchases – All other items
                                 including assets less than $1000
                Back of the BAS
                Statement




        Employee Wages
Amount Paid       $ 15,000.00
Tax Withheld      $ 5,000.00




Note – Subcontractors
are treated as non capital
suppliers on previous
slides
   Gross Sales less GST
Installment Rate given by ATO

 You can increase the rate

PAYG Tax Payable
$39 262 /11




              $7412 / 11
                GST Credit




Tax Payable
              Amount Owing/Refund

				
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