Taxation

1. Taxation

2. 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

3. Taxation In Australia • All Levels of government raise taxation. • Local Councils • State Governments • Federal Governments

4. Local Government • Most of the tax raised is by the way of rates • Other taxes may be in the way of levies & fees

5. State Taxes • Payroll Tax • Tax levied on wages paid • Payable where yearly payroll is greater than $600 000 • Payroll Tax Rate = 6%

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)’

7. 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

8. 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

9. Other State Taxes • Stamp Duties on Transfer of Property • Mortgage Duties • Vehicle Registration & Transfer

10. Federal Taxes • Income Tax • Company Tax • Capital Gains Tax • Fringe Benefits Tax • GST

11. 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

12. 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.

13. 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

14. 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

15. 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%

16. Vehicle FBT • A Toyota Camry is provided valued at $35 000 • Travels 13000km for the year$40 000 x 26% x 1 = $10 400 x 2.067 (Grossing) = $21 496 x 46.5% = $9996.01 • Travels 43000km for the year$40 000 x 7% x 1 = $2800x 2.067 (Grossing) = $5787.60 x 46.5% = $2691.23 • 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.

17. 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

18. 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.

19. 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

20. 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

21. 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

22. 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)

23. 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

24. Income Tax • Progressive Tax levied on assessable income • Income is “World Wide Assessable Income” • Assessable Income = Gross Income – Allowable Deductions

25. 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)

26. 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)

27. 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

29. Answer to Weekly Review

30. Depreciation Scedule

32. 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

33. COMPANY TAXCompanies 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

35. Answer to Weekly Review

36. Depreciation Scedule

38. 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

39. 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.

40. 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

41. 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

42. 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).

44. 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

46. 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).

47. Pay as You Go (PAYG) Witholding • Method by which wages & salary earners pay tax • Employer deducts from gross pay from employees at prescribed rates

48. 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

49. 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

50. Business Activity Statement • Form submitted to the ATO to report tax obligations • Including • GST • PAYGW • PAYGI • Wine Equalization Tax (WET) & • Luxury Car Tax (LCT)