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Cheatography

Taxation on Individuals

This is a draft cheat sheet. It is a work in progress and is not finished yet.

m4.1 Who to lodge Return? - Exceptions

Almost Everyo­ne!!!
Possiblly Except­ions: No NEED to LODGE a RETURN

m4.1 Tax Equation & Tax Table

INCOME TAX = [ TAXABLE INCOME X TAX RATE] - TAX OFFSET

m4.1 Tax Flow & Calcul­ation Steps

m4.1 Tax Calcul­ation - Sample

m4.2 Assessable Income

TYPE
Details
1. EMPLOY­EE-­RELATED INCOME
-Salary, wage, gratuity, commis­sion, allowance (but not defined fringe benefits).
 
-* Fringed Benefits taxed as FBT
2. FOREIG­N-S­OURCE ORDINARY INCOME
-Generally taxable for residents
 
-Exempt if continuous period of foreign service >= 91 days for certain charit­able, aid and gov't work (NOT Taxable in Au)
 
-Not working for those org might end up paying tax both overseas and Au.
 
-Double taxed can be relieved by the applic­ation of FITO
3. SHARING ECONOMY INCOME
-Generally same tax obligation to tradit­ional service providers (unless reasonably considered a hobby or recrea­tional pursuit)
 
e.g Air BNB, Uber
4. DIVIDENDS
Franked Dividends include franking credits for company tax already paid (added to the assessable income, then offsets tax payable)
 
-Similar treatment for dividends received from NR company (but with a limit on the offset)
 
-NR don't received Franking Credits and UNfranked dividends have withho­lding tax applied
5. INTEREST
-From banks, invest­ment, children's savings acct operated by Taxpayer, ATO and foreign sources (gross it up and include in the assessable income and apply offset wtax being paid
6. PROPERTY
-Rent, Rent-r­elated pmt eg. booking fees, insruance compen­sation, bond, or reimbu­rse­ments for deductible expend­iture
 
-Includes monetary value of goods/­ser­vices received.
 
-Share­/Ap­por­tio­nment income for joint/­in-­common ownership
7. TRUST INVESTMENT
-Credits from cash mgt trust, MM trust, Unit trust, UITF
 
-if BEnefi­ciary to declare entitl­ement to trust income (even if not actually paid)
8. Royalties
-Payments Received for the Use of Rights (copyr­ight, comm'l info,film) either Periodic, Irregular or One-Off
 
-Asses­sable Income ► grossed up if coming from overseas which had been subjected to wtax)

m4.2 Tax on Minors - Overview

Eligible assessable income tax rates are substa­ntial = on income of $1,308 or higher will be top marginal rate of 45% is applied

**Eligible Taxable Income of a Prescribed Person that we applied the penalty rate...
1. Family trust distri­bution
2. Business Income of a Trust Estate
3. Passive Income other than from e.g. deceased estates.Eligible assessable income tax rates are substa­ntial = on income of $1,308 or higher will be top marginal rate of 45% is applied

m4.2 Tax on Minors - Div6AA

**DIV6AA - Anti-A­voi­dance

1. Special Rates on tax for certain types of unearned income
2. Preventing Diversion of income to children (limit tax advant­ages)

m4.2 MINOR Tax Treatment (Div 6AA ITAA36)

Termin­ology
Excepted persons
Minors who work full time or suffer from incapacity or disability ► Div6AA DOES NOT APPLY
Prescribed persons
Other minors other than above ► Div6AA Applies
Excepted assessable income
Prescribed person Earnings subjected to the normal tax treatment for indivi­duals applies to that income. Includes minor's employment income or minor's business income (parti­cipated in daily operat­ions, real & effective control over operations and disposal of income)
Eligible assessable income
Prescribed person Earnings subjected to Div6AA tax provision, effect­ively increasing tax rate on the taxable income. Includes "­une­arned income­" e.g. business income (trust distri­bution) or passive income (dividends or interest)
Eligible taxable income
Prescribed person ► Eligible Assessable Income - Deductions - Propor­tionate Share of any apport­ioned deduction (gifts).
Eligible assessable income tax rates are substa­ntial = on income of $1,308 or higher will be top marginal rate of 45% is applied

**Eligible Taxable Incom of a Prescribed Person that we applied the penalty rate...
1. Family trust distri­bution
2. Business Income of a Trust Estate
3. Passive Income other than from e.g. deceased estates.

m4.2 MINOR - Categories of Assesable Income

DIV6AA DOES NOT APPLY
SUBJECT TO NORMAL TAX TREATMENT OF AN IND

m4.2 MINOR - ETI Tax Rates

$416 is the effective tax-free amount applicable to a prescribed person for their eligible tax income - Div6AA

Reference - ITRA 1986, Schedule 11

m4.2 MINOR - Tax Calc sample

m4.3 Employment Termin­ation Pmt - ETP Overview

SPECIAL TYPE OF INCOME

m4.3 Preser­vation Age

m4.3 Life Benefit ETP Component

M4.3 Employment Termin­ation Payments (ETPs)

1. Life Benefit Termin­ation Payments
A. LBTF - Tax Free (Inval­idity Segment or Any pre-July 1983 Segment)
 
B. LBTF - Taxable remaining after tax-free component. Affected by the age of the person and amt received.
 
B.1 Under ETP CAP OF $230,000 (2022/23)
 
B.1.1 Reached Preser­vation Age = 15%
 
B.1.2 Not Reached Preser­vation Age = 30%
 
B.1.3 Exceeds ETP Cap = taxable at top marginal rate (45% plus levies)
 
B.2 Whole of Income Cap* = $180,000 (2022/23)
2. Death Benefit Termin­ation Payments
3. Genuine Redundancy Payments
Excluded Payment ► Whole-­of-­income do not apply.
4. Early Retirement Scheme Payments
Excluded Payment ► Whole-­of-­income do not apply.
 
Not Excluded Payment (e.g. lumpsum on retire­ment)
 
-the applicable cap to determine any ETP tax offset is the LESSER OF*:
 
ETP cap amount ($230K) or Whole-­of-­income cap ($180k)
TAXABLE COMPONENT - is reduced by (1) ETP cap or (2) amount above cap taxed at top marginal rate.

Basically, any other taxable income of the IND (wages or other income) contri­butes towards the whole-­of-­income cap is reduced accord­ingly by such amount.

m4.3 LBTP - Tax Free Pre July 1983 Employment

m4.3 LBP - Problem Sample

m4.2 Unused Annual Leave

Included in Assessable Income taxed at marginal rate of 30% + 2% Medicare Levy

m4.3 ETP Tax Offset Calcul­ation

m4.3 PSI Rule (Part2-42- ITAA97)

STEP 1: Determine if there's a PSI (Personal Services Income)
► Reward for the personal efforts or skills of an individual
► Income gained by an entity e.g. company, trust or partne­rship for the personal effort or skills of an individual
Not PSI on income mainly for:
► Supply or sale of goods
► Granting a right to use property
► Generated by an income­-pr­oducing asset

m4.3 PSI RULE Step 2: Is PSB Being Conducted?

PSI - Personal Service Income
PSB - Personal Service Business

1. Commis­sioner only likely to grant a Determ­ination (in unusual circum­sta­nces)
2. Otherwise, at least ONE of the 4 tests must be satisfied

m4.3 PSB Determ­ina­tion: (1) Results Tests

Therefore,
PSI regime applies
RT Pty Ltd must attribute all the fee revenue to Ralph
Ralph will be assessed on entire revenue amount in accordance with s.86.1 - IND ASSESSABLE INCOME

m4.3 PSB - <80% Single Sourced - Other Tests

m4.3 PSB - Unrelated Client Test x.87-20(1)

Say,
* there are 5 different entity clients
* Unrelated clients test is satisfied
* PSI provision WILL NOT APPLY

m4.3 PSB - Employ­men­tTest s.87-25(1)

Ralph is the sole employee of RT P/L

Therefore, The Employment Test is NOT SATISFIED

m4.3 PSB -Business Premises Test s.87-30(1)

m4.2 Supera­nnu­ation Benefit Payment

M4.5 Supera­nnu­ation

Two Primary Regula­torsof Supera­nnu­ation Oversee the Operat­ions:
1. APRA (Austr­alian Prudential Regulation Authority) - Most Supera­nnu­ation Funds
2. ATO (Austr­alian Taxation Office) - Self Managed Supera­nnu­ation Funds

Rule Covers:
► Legal Structure
► Trustee Requir­ements
► Required Contri­butions
► Compliance Provisions
► Taxation

m4.5 Supera­nnu­ation Distin­ction

Compliance
► Complying vs Non-co­mplying

Interest
► Define Benefit vs Accumu­lation

Taxation
► Taxed vs Untaxed
- Taxed on: (1) Contri­bution Made (2) Earnings Generated (3) Benefits Released

m4.5 Supera­nnu­ation Funds

Category
1. Size ► Large vs Small
2. Availa­bility ► Public vs Private
3. Structure ► RSEs (Regis­trable Supera­nnu­ation Entities) vs SMSF(S­elf­-ma­naged Supera­nnu­ation Funds)

m4.5 Tax on Super Contri­bution - CONCES­SIONAL

CONCES­SIONAL CONTRI­BUTIONS
1. By the Employer
►Compu­lsory supera­nnu­ation contri­butions
► Additional contri­butions from agreement
► Salary sacrifice arrang­ement

2. By the Member
► Notify the trustee
► Claim a tax deduction for the contri­bution
► Assessable income for, and taxable in, the fund

m4.5 CONCES­SIONAL CONTRI ADJUSTED - LISTO

Low Income Supera­nnu­ation Tax Offet

m4.5 CONCES­SIONAL CONTI ADJMNT- Division 293

Adjustment for High Income Earner

m4.5 Tax on Super - NON CONCES­SIONAL - TAXPAYER

NON-CO­NCE­SSIONAL CONTRI­BUTORS
1. TAXPAYER CONTRI­BUTIONS FROM AFTER TAX FUND
2. GOVERNMENT CO-CON­TRI­BUTIONS
3. SPOUSE CONTRI­BUTION

m4.5 Super Balance Cap

CONCES­SIONAL CONTRI­BUTIONS CAP
NON-CO­NCE­SSIONAL CONTRI­BUTIONS CAP

m4.5 Tax on Super - NON CONCES­SIONAL - GCC

NON-CO­NCE­SSIONAL CONTRI­BUTORS
1. TAXPAYER CONTRI­BUTIONS FROM AFTER TAX FUND
2. GOVERNMENT CO-CON­TRI­BUTIONS FOR LOW INCOME EARNERS
3. SPOUSE CONTRI­BUTION

m4.5 Tax on Super - NON CONCES­SIONAL - SPOUSE

NON-CO­NCE­SSIONAL CONTRI­BUTORS
1. TAXPAYER CONTRI­BUTIONS FROM AFTER TAX FUND
2. GOVERNMENT CO-CON­TRI­BUTIONS
3. SPOUSE CONTRI­BUTION; THE CONTRI­BUTOR RECEIVES A SPOUSE CONTRI­BUTION OFFSET.
  

m4.5 Tax on Super Benefit - Condition of Release

m4.5 Tax on Super Benefit - Conseq­uence of Release

m4.5 Tax on Super Benefit - Components

SUPERA­NNU­ATION FUND COMPONENT

1. TAX-FREE Component
- Non Conces­sional Contri­butions
- Cyrsta­llised segment (pre-July 2007 compon­ents)
- Tax free on Exit.

2. TAXABLE Component the remaining balance and includes:
- Conces­sional Contri­butions
- Earnings of Supera­nnu­ation fund
- Consist of 2 Elements - (1) taxed & (2) untaxed

m4.5 Tax on Super Benefit - Component

m4.5 Tax Table - Super - General

m4.5 Tax on Super - Death

m4.5 Super Exit - LumpSum v Income Stream

Taxation Benefits Depends on the Range of Factors:

1. TYPE OF BENEFITS BEING PAID
2. THE AGE OF THE MEMBER (e.g. at or below preser­vation, 60 or 65)
3. THE WORKING STATUS OF THE MEMBER (e.g. retired, working or intending to work)
4. FOR DEATH BENEFITS & STATUS OF THE BENEFI­CIARY (e.g. age, death benefit dependant)
5. THE TAX STATUS OF THE FUND, ITS CONTRI­BUTIONS AND ITS EARNINGS (e.g. taxed, untaxed, conces­sional or unconc­ess­ional contri­but­ions)

m4.7 Tax Offset and Rebates - CATEGORY

TWO BROAD CATEGORIES OF TAX OFFSET
Sample:
Rule:
(1) NON-RE­FUN­DABLE TAX OFFSETS
-Senior Au and Pensioners Tax Offset (SAPTO)
-Cannot be offset against levies and surcharges
 
-Dependant Invalid and Carer Tax Offset (DICTO)
-Don't get paid out if exceed the IND's income tax liability
   
-Don't get carried forward to a future year
 
(2) REFUNDABLE TAX OFFSET
-Private Health Insurance Tax Offset
-Refundable to the IND if they exceed the income tax liability
 
-Franking Credit Tax Offset
Tax Offset and Rebates directly reduce income tax payable.
Applied for Range of Reasons:
1. Wealth Redist­rib­ution
2. Prevent Double Taxation
3. Encour­aging Govenment Policy

m4.7 Tax Offset - Private Health Insurance

m4.7 Tax Offset - Low Income Tax Offset

(s159N ITAA36)
Maximum of $700, less 5cents for each $1 over $37,500.00

m4.7 FITO - Div 770

m4.7 Foreign Income Tax Offset - FITO Limit Calc

FOR FOREIGN INCOME TAX PAID IS OVER OR >$1­,000, SUBJECT TO AN OFFSET LIMIT

m4.7 FITO - Sample

m4.7 FITO Limit Calc

m4.8 Calcul­ating Tax Payabl­e/R­efund

Non-Re­fun­dable Tax Offsets can only be applied against the current year basic income tax and cannot exceed the amount of income tax payable.

Refundable Tax Offsets can exceed the tax payable and lead to an amount payable to the IND taxpayer.

m4.3 Taxation -Termi­nation Payment

Life Benefit Payment & Death Benefit ETP