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 $ 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 31 st 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 = $ Land Value = $ less threshold $ $ 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 31 st 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 Employer pays for Private Health Insurance of employee valued at $3000 Taxable FBT Amount $3000 x = $6201 FBT Tax Payable $6201 x 46.5% = 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% to 24999km = 20% to 40000km =11% > 40000km=7%

Vehicle FBT A Toyota Camry is provided valued at $ Travels 13000km for the year $ x 26% x 1 = $ x (Grossing) = $ x 46.5% = $ Travels 43000km for the year $ x 7% x 1 = $2800x (Grossing) = $ x 46.5% = $ Travels 27000km for the year $ x 11% x 1 = $4400x (Grossing) = $ x 46.5% = $ 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 – Trusts33 1/3 % discount – Companies0% Discount

Capital Gains Tax - Individual House Purchased in 2001 for $ House Sold in 2008 for $ – Cost Base = $ Purchase Price – $ Agent Fee on Sale – $ Legal Fees – $ Stamp Duty Cost Base = $ Capital Gain = $ $ = $ Assessable Income = $ x 50% = $

Capital Gains Tax - Company House Purchased in 2001 for $ House Sold in 2008 for $ – Cost Base = $ Purchase Price – $ Agent Fee on Sale – $ Legal Fees – $ Stamp Duty Cost Base = $ Capital Gain = $ $ = $ Assessable Income = $ (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 08-09Tax Payable $0 -$6 000Nil $ $ c for each $1 over $6,000 $ $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 000Fuel for work Vehicle $ Bank Interest $1 500Income Insurance$ Income Protection $3 700Materials$ Rent Received $9 500Workcover Licensing$ 120 Work Cover Fine$ Mortgage Payments$ ($2500 Int) Ute Purchase 1/7/xxxx$35 000

Answer to Weekly Review

Depreciation Scedule

Taxable Income 08-09Tax Payable $0 -$6 000Nil $ $ c for each $1 over $6,000 $ $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 = $ $ = $ Tax Payable = $ ($ $34 000) x $0.30 = $ $ = $ Note – Partners pay taxes as individuals

Determine Assessable Income and Tax Payable for Individual Money Received Costs for the Year Contract Income $95 000Fuel for work Vehicle $ Bank Interest $1 500Income Insurance$ Income Protection $3 700Materials$ Rent Received $9 500Workcover Licensing$ 120 Work Cover Fine$ Mortgage Payments$ ($2500 Int) Ute Purchase 1/7/xxxx$ COMPANY TAX Companies are taxed at a flat rate of 30% with no tax free threshold

Answer to Weekly Review

Depreciation Scedule

Assessable Income = $ $ = $ Tax Payable = $ x 30% = $ Compare Against Individual Tax Payable = $ ($ $34 000) x $0.30 = $ $ = $

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 1 st 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 $ 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 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

Gross Sales Does it include GST?

Capital Purchases – Purchases that you are required to depreciate. Generally assets greater than $1000

Non Capital Purchases – All other items including assets less than $1000

Back of the BAS Statement 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

$ /11 $7412 / 11

Tax Payable GST Credit Amount Owing/Refund