# INTRODUCTION TO TAXATION

TOPIC 1. – INTRODUCTION TO TAXATION

TUTORIAL QUESTIONS

The above rates do not include the Medicare levy of 2%.

1. What is the basic income tax payable for an Australian resident individual with taxable income for the 2019-20 income year of:
1. What is the basic income tax payable for a foreign resident individual with taxable Australian income for the 2019-20 income year of:

Question 3:

Mark is an Australian resident taxpayer. His gross salary for 2019/20 is \$89,000 and an amount of \$27,600 of PAYG withholding tax has been deducted from his salary by his employer. He has incurred expenses of \$8,200 which are allowable deductions.

Required:

Calculate Mark’s tax liability for the 2019/20 income year.

Step 1: Calculate Mark’s taxable income – \$89,000 – \$8,200 = \$80,800

Step 2: Calculate Mark’s BITL – [(\$80,800 – \$37,000) x 32.5%] + \$3,572 = \$17,807

Step 3: Deduct non-refundable tax offsets (LAMITO) \$17,807 – \$1,080 = \$16,727

Step 4: Calculate Medicare Levy and Medicare Levy Surcharge (Note since taxable income

<\$90.000, there is no MLS) – \$80,800 x 2% = \$1,616 + \$16,727 = \$18,343

Step 5: Deduct any refundable tax offsets and other tax credits (PAYGW) – \$18,343 – \$27,600 = (\$9,257) (Refund)

Question 4:

Calculate the Medicare levy payable (if any) for the year ending 30 June 2020 on the following amounts of taxable income for a single Australian resident taxpayer who is not entitled to the seniors and pensioners tax offset:

*If your taxable income is between \$22,801 and \$28,501, your Medicare levy will be 10% of the difference between your taxable income and the lower threshold (\$22,801).

Question 5:

Jacqueline is an Australian resident for income tax purposes. She has taxable income of \$77,000. She has been provided with a receipt for an expense in the amount of \$1,000. This expense will constitute a deduction. How much tax will Jacqueline save for the 2019-20 income year?

The value of a deduction will be at the taxpayer’s highest marginal tax rate. As Jacqueline’s taxable income is \$77,000, her highest marginal tax rate is 32.5% and the deduction of \$1,000 would have reduced her tax payable by \$325.

Question 6:

Indicate whether the following statement is true or false and include a brief explanation with your answer:

“ATO Rulings are a source of law, as they are legally binding on the Commissioner when a taxpayer relies on them”.

False. ATO Rulings are not a source of law – they the Commissioner’s interpretation of how the law applies. The only sources of tax law are legislation (statutory law) and case law (judicial law).

Question 7:

Indicate whether the following statement is true or false and include a brief explanation with your answer:

“The Goods and Services Tax (GST) is a proportional tax because when it applies, the rate is always 10%”.

False: GST is a regressive tax in that the burden of the tax falls more heavily on low income taxpayers. Example: Assuming that it costs an average of \$550 per week (including GST) to meet an individual’s basic needs. The GST on that expenditure is \$50. That amounts to 5% of the total income of someone earning \$1,000 per week, but only 1% of someone earning \$5,000 per week.

Question 8:

Indicate whether the following statement is true or false and include a brief explanation with your answer:

“Horizontal equity and vertical equity are terms describing identical concepts – both are about fairness in the tax system”.