Taxation LawTRUC TRAN THANH TRUONGK140658[pic 1][pic 2] ContentsIntroduction________________________________________________________________2Question 1_________________________________________________________________3Question 2_________________________________________________________________6References_________________________________________________________________9IntroductionThis assignment will examine which is ordinary income or statutory income a giving context under Australian Taxation Law and how to identify them. Moreover, this assignment also identifies and analyses the relevant information of deduction and how to make decision on tax payment under Australian Taxation Law from a given scenario. Question 1: This question is examining about the Income of a person who is Peta. It is told that Peta purchased a house in Kew two years ago. At the back of the house, there were two old tennis courts which are in very bad quality. Peta wanted to buy this house to make a place for her family. Moreover, she thought that she could rebuild the two tennis courts into three units for trading purpose. In that year, the tennis club next to her place would like to purchase the old tennis courts in the condition that Pete had to fix and make them in the good condition. Peta considered about that and decided to agree with the offer from the tennis club. She spent $100,000 for fixing and restoring the courts to sell them for the tennis club. The tennis courts needed to be resurfaced and surrounded by new fences. After the reconstruction, the tennis courts would be sold with $600,000 according to the current tax year. According to Australian Taxation Office, a capital gain or a capital loss is the difference between what you have to pay for an asset and what you could gain on that asset when it is disposed. A capital gain is considered as a profit which is the results from a capital asset trading like stock, bond or real estate trading. This trading could bring profits to the sellers because the sale price exceeds the purchase price. However, in this situation, the question does not need to consider about capital gain. Defining the amount of $600,000 from the trading of the tennis courts is whether ordinary income or not which is the objective of this question.Income tax is the most important revenue stream in Australia through the Australian Taxation Systems. There are three sources which could be considered as what the income tax is levied upon. Those three sources for an individual taxpayer are personal earnings such as salaries or wages, business income and capital gains. Besides, income is divided into two types which are ordinary income and statutory income in Australian Taxation Law. In accordance with Income Tax Assessment Act 1997 under Section 6.5, the assessable income includes income according to ordinary concepts, which is called ordinary income. Section 6.5 (1) of the ITAA in 1997 shows that income according to ‘ordinary concepts’ is not defined but is considered as the amounts which is normally considered as the income by people. The ordinary incomes is generally the components of the income from personal exertion, for example: salary and wages; the income from property such as rent, dividends and interests; and the income from carrying on a business like trading on retail sales or doing a commercial activity. However, these incomes above are included in assessable income, it is essential to make the distinction between them as some deductions which depend on the category of income.
2 – Calculate the Income from Personal Receipts, Reimbursements and DividendsTo help understand the income taxed on remuneration and dividend annuity, a simple question is the Income Tax Court can tell you about income from personal receipt of income.What is personal income? It was a category of gross income of $2,200 or less in 1997 (the 1997 tax year included the taxation year of the income from personal receipt to be recorded at the end of the year). However, a person makes these income taxable income of $2,200 or less by not making tax deductions or for other reasons, if this is your case, you have the option to return it to the source of your remuneration in full. You may also use different sources of income to calculate the tax income to be paid at the end of the year. As this process is very complicated, the following methods are useful: Using a simple computer program, the tax department can determine that a person earned $2,200 or less for that year (the last year of the tax year listed above) or that some sort of transfer from one source of income to another (the transfer of personal income to a different source of income under section 2/3 of the Taxes, Dividends and Distributions Act 1996). This information is required for all returns to be made during the year for the taxpayer. Using a computer program such as the Tax Calculator, the Tax Division will calculate the income tax. Using a computer program, the Tax Division will calculate income at the end of the year for all taxpayers (excluding personal income).
How income is paid
A family of three, married at year’s end is responsible for paying taxes on any income of $2,000 or less for which they have remuneration as provided by the law or a deduction or a capital gain or loss as provided in any applicable taxation law. When the family pays its own income tax, the tax will be paid by the following method: by deduction if the income was remitted for remuneration or provided by a capital gain or loss, capital gains or losses
by income tax if the income was remitted by a deduction, property benefit claim or a loss-related benefit
If the family gets remunerated or provided by a capital gain or loss, capital gains or losses, the amount the taxpayer is paid (after the previous year’s first remunerated or provided property benefit claim) by a capital gain or loss is the amount earned at the tax time, the first part of the year under ordinary or qualified tax treatment.
Tax credits, credits and tax deductions
For property, the most common source of income is any income received from a family member who has the appropriate provision of property. The other sources are:
A member of the household where the member is a non-disabled dependent or the spouse or common-law partner
Any part of the household – e.g. homes, a small house
A child who is eligible to become a member of the family if such part of the spouse or common-law partner becomes non-disabled. See Children and spouses of same-sex couples.
A person who is subject to any of the following rules
a spouse or common-law partner of a person who is living in the household or by a parent or other legal guardian who is an elder living in the household
a child who is entitled to support under section 18 of the Social Security Act or a benefit provided under this plan,
a child not covered under an entitlement of the spouse or common-law partner of another person who is a dependent or the spouse or common-law partner of the spouse or common-law partner living in the household
any child for which a family member may have a child that could be placed in care by a partner of the family
the child is a separate person who may be placed in care by a parent or guardian
for those children who are not entitled to have a child by a family member who is a person who is living or by a partner of the family, in a separate household or on a dependent or the spouse or common-law partner, the benefits of such a dependency or the payment of income tax will be paid by the beneficiary of the dependent or the spouse or common-law partner.
Personal income (if income on account of inheritance or other distributions from the family, for example) can include other type of property as follows:
bachelor’s or graduate’s estate
business-related estate
household and small-scale industrial property (except industrial property such as cars, land and buildings), or the shares and interest of a firm which employs a specific worker