1. Lesson 8 Tax in Australia Li, Jialong 2011-2-26

2. The history of taxation in Australia The colony of Tasmania was the first state to impose a tax on income received from profits of public companies. The Commonwealth government has been the sole collector of income tax since 1942 and reimburses the States according to the terms of their agreements. The States supplement this by raising taxes of their own such as payroll tax and land tax. Since 2000 with the New Tax System the states share the GST with the Commonwealth. The original tax act of 1936 and the further Act 1997 require tax to be levied each year on income received by any person resident or non- resident. The rate of tax that is applied to income is declared by the Parliament at Federal Budget time by the Treasure of the Government.

3. The history of taxation in Australia From the amount of income received any allowable deduction may be subtracted, the result is taxable income. The Medicare Levy (a tax of 1.5%) is applied also and a total tax bill or liability owing is calculated and must be paid to the Australian Tax Office when a tax return is completed. All Tax payers are required to self–assess their tax liability. Company and trusts and other corporate structures are also liable for income tax. Self-assessment means that the ATO issues a notice of assessment based on the information provided in your income tax return. You have an obligation under the law to make sure you have shown all your income and only claimed legal deductions and tax offsets. Under a self assessment method the legislation requires that adequate documentation should be maintained of all revenue and expenses and that evidence be shown when requested by the ATO. The ATO carries out audits and checks to make sure taxpayers are paying the required amount of tax.

4. Assessable Income Income needs to be determined before tax can be charged. To determine if money received (a receipt) or something that can be converted to money, is income for taxation purposes you have to get the definition of income comes from case law. A receipt is income if: It resulted from your personal exertion ( you worked for it) There is an element of regularity about it. It results from an investment

5. The Australian Taxation Office ‘ s definition of income The Australian Taxation Office‘s definition of income includes the following common forms of income as: Salary and wages Allowances, earnings, tips, directors fees etc Lump sum payments Eligible termination payments Commonwealth government allowances like Newstart, Austudy etc Commonwealth government pensions and allowances Other Aust pensions and annuities, including superannuation pensions Gross interest Dividends Partnership and Trust incomes Net income or loss from business Capital gains Rental income

6. Exempt Income Not all income is taxed. Exempt income is income that is not taxable under the tax law. Examples of Exempt Income include: Commonwealth government pensions, allowances and payments’ Exempt defence forces payments Other exempt payments including child support payments.

7. Deductions The taxation legislation permits us to claim any expenses as a DEDUCTION or reduction in our taxable income if it is paid or incurred in the production o f assessable income except if it is capital (buying an asset eg car) or of a private nature( eg food for family). Examples of Tax Deductions are: For Businesses Electricity Rent Wages Telephone Depreciation (Wearing out of an asset on an annual basis) For employees: Work related car expenses Work related travel expenses Uniforms and protective clothing Taxable Income = Assessable Income – Allowable Deductions

8. Example: Calculating taxable income

10. Individual income tax rates

11. Compare the tax rate in Shenzhen （ 2010 ） 应纳税所得额 = 每月工资薪金收入额 - 费用扣除额 应纳税额 = 应纳税所得额 x 适用税率 – 速算扣除额 含税级距不含税级距税率 （ % ） 速算 扣除数 1 不超过 500 元的不超过 475 元的 50 2 超过 500 元至 2000 元的部分超过 475 元至 1825 元的部分 1025 3 超过 2000 元至 5000 元的部分超过 1825 元至 4375 元的部分 15125 4 超过 5000 元至 20000 元的部分超过 4375 元至 16375 元的部分 20375 5 超过 20000 元至 40000 元的部分超过 16375 元至 31375 元的部分 251375 6 超过 40000 元至 60000 元的部分超过 31375 元至 45375 元的部分 303375 7 超过 60000 元至 80000 元的部分超过 45375 元至 58375 元的部分 356375 8 超过 80000 元至 100000 元的部分超过 58375 元至 70375 元的部分 4010375 9 超过 100000 元的部分超过 70375 元的部分 4515375

12. Other Taxes in Australia There are a number of different taxes that can apply to your business, depending on your location and business activity. Please use the list below and the reading Small Business Essentials and discover the way these taxes work in Australia. Capital Gains Tax Excise duties Fringe Benefits Tax Goods and Services Tax Income tax for business International Tax Land Tax Pay As You Go Instalment tax Pay As You Go Withholding Tax Payroll Tax Rates Stamp Duty Tax Concessions for Small Business

13. Review Questions History of Taxation in Australia Individual and company rates of tax Taxable income and tax payable Other taxes a business might encounter in Australia

14. Exercises Exercises 8.1, 8.2, 8.3

15. Reading and Resources Study Notes Lesson 8 PDF files to read and review Small Business Essentials and GST for Small Business

16. The End of Lesson 8