Topic Three THE STRUCTURE OF THE ITAA AND THE INCOME CONCEPT Brief Outline Of This Topic jurisdictional aspects of the ITAA assessable income taxable income exempt income ordinary income statutory income tax offset marginal rate average rate Detailed Outline Of This Topic 3. 1Jurisdictional Aspects Of The ITAA Legislation: ITAA97 s6-5; s6-10 Text:UTL 2. 31 to 2. 49 Income tax treatment of residents Income tax treatment of foreign residents CGT treatment of foreign residents 2. 31 ITAA97 s6-5 and s6-10 provide common jurisdiction limits to Aus claim to tax.
Aus residents are liable to tax on worldwide income, non- residents’ liability is limited to Aus source income. 2. 32 A non-resident’s exposure to Aus CGT is limited to property specified in s855-15 2. 38 The decisions in Applegate and Jenkins establish that ‘permanent’ does not mean everlasting, merely indefinite, and so Applegate’s departure for an indefinite but short (3 years) period was enough to demonstrate his permanent place of abode was outside Aus despite his being of Aus domicile. 3. 2Determining The Taxable Quantum Assessable income Exempt income/ Non Assessable Non Exempt Income Deductions
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Taxable income Tax rates Proportional vs progressive rates of tax Rates of tax: individuals and companies Tax offsets Calculation of tax payable – examples Legislation ITAA97 s4-1; s4-10; 4-15; 6-5; 6-10; s6-15; s 6-20; 6-23; 6-25; s 8-1; s8-5; s8-10; Div 11 Subdivision 11-B Text: UTL 2. 1 to 2. 4 3 types of income concepts derived from the legislation: ordinary income(s6-5), statutory income(s6-10) and exempt income. ITAA36 operates concurrently with the ITAA97 s4-15(1) is the taxable income equation: taxable income = assessable income – deductions. Assessable income is defined in division 6.
Assessable income is made up of ordinary income and statutory income (ITAAS97 s6-1). An important feature of a credit/rebate/offset is that it reduces one’s tax, as opposed to a deduction, which reduces one’s taxable income. One of the best known tax credits is the imputation credit accompanying a franked dividend paid by a company to a shareholder. Ordinary Income Income under ordinary concepts. Australia resident is subject to assessment on all ordinary income, irrespective of its source. Foreign resident is liable only in respect of Australian source income. Statutory Income All other amounts that are not ordinary income.
Exempt Income 6-15 What is not assessable income: if an amount if not ordinary income, and is not statutory income, it is not assessable income (so you don’t have to pay income tax on it) 6-20 An amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another Commonwealth law. Scott v CT (NSW) He was dismissed and was paid compensation. This amount represented what he would have received had his services been used. Held: No part was income under the NSW Income Tax ACT Tennant v Smith Mr Tennant was allowed to live in a rent-free premises.
Held: The amount was not liable to tax because income must be convertible into money. FCT v Cooke & Sherden further supports this decision as two taxpayers were awarded holiday and it was held that it did not represent income. 3. 3Returns and Assessment Text UTL Chapter 16 Requirement to lodge returns Form of returns Electronic Filing Self Assessment and Administrative Assessment Notice of Assessment Amendment and Reassessment 3. 4Competing Concepts Of Income TextUTL 2. 5 to 2. 18 The Accounting Concept The Economic Concept The Judicial Concept: Income As A Flow From A Source Income As A Reward For Services
Income As A Business Gain Income As A Return On Investment Compensation Receipts As Income 2. 6 The accounting concept The accounting approach to income definition and measurement is generally taken to be the profit and loss account, drawn up in accordance with generally accepted accounting principles and represented by revenue minus expense. 3. 4Categories Of Income Under ITAA97 TextUTL 2. 19 to 2. 30 (exempt income) and 7. 1, 7. 60, 14. 18, 14. 57, 14. 59. 14. 62, 18. 4, 18. 9, and 18. 36 (examples of non assessable non exempt income) Ordinary income Statutory income Exempt income Non assessable non exempt income
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