TAXATION THEORY, LAW & PRACTISE

Introduction

Taxes are actually imposed on the value of money of an individual’s income. Taxation theory helps in understanding the excess amount of money that is collected from various sources and utilizing that to the need of the public and government (Williams, 2016). This study focuses on the fact that the taxation theory is actually the imposition of taxes on an individual’s income. It is the process of deducting the income amount of an individual which is basically accumulated from various sources. In this assignment, the main purpose is to show the assessable income of Emmi which is imposed on the receipts collected from the restaurant and also the consequences of legal laws and issues in Australia.

Question 1: Calculate total assessable income

Emmis’ total assessable income is based on the changes in the value of the restaurant Crown Melbourne’s Stocks and from other sources of income

Table 1: Calculation of total assessable income

Source: (Possessed by author)

The total assessable income which is being calculated in this table is derived from the income of Emmi from the Crown Melbourne Restaurant (Kudrna, 2016). The assessable income of Emmi is deducted from the deductible allowances to get net assessable income as per the income tax law of Australia.

1. Consequences and scenario of FBT

Fringe benefits are basically the compensations that are paid by the employers to their employees or the workers. The scenario of FBT is that it is applied to certain circumstances like health insurance, reimbursements, employee discounts, and cafeteria subsidiaries and so on. As stated by Rawlings (2019), these benefits actually attract the employees for better performance and output. Emmi’s income from the meals which is paid by the owner is considered under the fringe benefits tax. It can also be applied by any third party to the employees rather than the employer of the company. The consequence is that it helps in an increase in wages by 1% when the FBT increases by 1% as per the law of taxation in Australia (Cho et al. 2019). It is stated that the FBI that impacts the assessable income valuation for Emmi’s income.

2. Total assessable income of Emmi and its problem

The assessable income of Emmi is computed from the receipts which she has collected from the Crown Melbourne Restaurant where she is working as a part-timer. The issue of Emmi’s assessable income is that the differentiation between the assessable income, taxable income and the income which are non-accessible (Ato.gov.au, 2020). The problem is associated with the assessable income earned by Emmi and it is deducted from the allowances for the gifts that were provided by her clients and father.

The gifts which Emmi has got from others are deducted from the assessable income as per the ATO which is the Australian Taxation Office and this is considered as the main issue. Emmi’s father had gifted her a total of $15,000 and also an expensive perfume valued at $250. Both these factors were completely exempted from income.

3. Succinct application of ITAA 1936

As mentioned in the income tax assessment act (1036) section 23 (AG) the valuation of the income has to be properly planned and introduced. This law was properly passed in the Australian Parliament and concentrated on valuing the cost of Emmi;’s income that was taxed in the taxation process. As opined by Burton (2018), there are various sections under this Act of 1936 for deduction of tax which is earned by personal income. As per the income tax rule, the discount that was permitted to the taxpayer was $445 and this was calculated under section 159N. Emmi’s income was lower than the taxable rate and thus was not charged under the ITAA.

4. Taxation laws and analysis of legal issues

Australia follows the Commonwealth federal Government which imposes taxation on every individual in that country. The tax system of Australia is basically a mixture of indirect and direct taxes which are actually levied by both the State government and the Commonwealth. The principal legislations are the Income Tax Assessment Act 1936 (ITAA 1936), Fringe Benefits Tax Assessment Act 1986 and the Income Tax Assessment Act 1997 (ITAA 1997) which are imposed on the payment of income tax of Emmi (Unimelb.libguides.com, 2020). The legal issues of Australia are based on the case foundation provided by the court decision. The issue of law consists of the question facts which are mentioned in the application of tax. Thus the issues of legal laws are:

Surcharge in income tax:

In the research task, the Current issues with the taxation process and trusts will help in carrying out the independent variables that will be also used to resolve the taxation challenges. ATO is actually grateful for the RMIT to provide the trust and the tax system (Legislation.gov.au, 2020). It had helped in reducing the surcharge of the income as mentioned in Section (2) of the Finance Act. Emmi’s income reduction will be included in section (112A0 and also under the sex 115 AD (1) (B).

Income tax shuffle:

The issue of income tax shuffle actually exploits the differentiation which is under the definition of income. It is earned by the individuals who are based on trust laws and tax laws (Braithwaite and Reinhart, 2019). Beneficiaries and/or employers will not be held reasonable to pay any taxes or to recover the same from the tax upshot.

5. Applications of tax laws

The main application of tax laws are:

Corporate tax law 2012:

Organizations that are under the registered corporations in Australia including the LLC, Limited Liability companies are subjected to paying the corporate tax laws under Section 234A. As stated by Burton (2018), the restaurant where Emmi is working is under a limited liability company. Thus the owner of the restaurant is bound to pay the corporate tax law.

Federal tax law 1942:

Federal tax law is charged on the land or properties and also on the income of an individual by the Federal Government Branch under Section 92E. Both the state and the federal government are having the right for imposing taxes on Australian citizens.

6. Analysis of total assessable income

The income of Emmi is calculated on the basis of receipts which are provided to her by the restaurant. Emmi works as a part-timer in the Crown Melbourne Restaurant and the income which she has gained from the customer tips, gifts and other sources of income everything is considered under the calculation of net assessable income (Kudrna, 2016). The gifts received by Emmi are calculated under the deductible allowances for calculating net assessable income worth $25715

Question 2: Capital gain tax

The taxes levied on the long term and short term gains from the percentage of 1% to 15% income are actually referred to as the calculation of Capital gain tax. It is actually the differentiation of the value of assets recovered from the market in their purchase value.

1985. The costs of Liu’s house is not included in the valuation of the capital gain and it was procured before 20 September 1985. As stated in the ITAA act of 1997 and section 104-10(1) the total income that is liable for taxation is properly valued under the section of capital gains. The disposal income will be calculated under the sales of land 1962 and also under the transfer of land act of 1958 (Hidayat, 2018). As per the income tax rules, the income will not be included under the calculation of the CGT.
1986. The car value at $37000 is being valued to $ 8000 in the year 2011. The car is purchased by Liu after 20th September 1985 and therefore it is considered under the Capital Gain tax as per ITAA 1997. The loss incurred by Liu of $ 29000 is against the sale of assets and thus she is not going to get any discounted rate under the market inflation in Australia.
1987. Capital gain tax does not include the subject goodwill for payment of taxation. The purchase of the Monte Liu Photography is valued under $125000 and thus the current value of this photography is not considered under the CGT. As stated by Freundenberg and Minas, (2018), the selling price of the equipment is $53000 which is actually against the value of $ 63000. There is also a loss of $10000 which actually did not permit Liu from availing the value of capital gain tax.
1988. The buying cost of the stated furniture was $4800 and this was included in the sales price which was valued at $2000 (Hidayat, 2018). This incurred the company a capital loss that was incurred by the tax-payer and the right process to recover the cost indexation process had to be followed.
1989. As mentioned in the ITAA of 1997, disposal assets that occurred after 20^th September are not included in the capital gain process. Thus the paintings sold by the taxpayer was higher than $500 in the second shop as compared to the actual value of $28000. Liu will thus get a tax rebate of 50% which will be in the terms of the tax deductions.

1. Facts of deduction of Liu’s transactions

Liu’s transactions are totally based upon the sale of the properties. ITAA 1987 Act can be applied in case of Liu to sell her all the properties to go to her home in China. Capital gain tax before 1985 September 20th September cannot be applied in this case. Thus Liu can sell her property as per the date mentioned in the Law (Cho et al. 2019). For Liu, deductions are only possible when the properties have either devalued or gained the date mentioned.

2. Identification of CGT and Liu’s transaction conclusions

Application of the dividend can be helpful for the Capital gain tax. In the case of Liu, it can be applied when the tax rate exists 15% tax bracket. In the present case scenario, it can be said that the loss of the total asset for Liu was about $ 41800. Thus she is eligible for providing gain tax from next year. In addition to this, she can sell all the assets to return to her home country China. In the case of securities, short term gains occurred that is similar to the case of Liu.

3. Legal laws analysis

There are several types of laws can be applied in case of Liu to sell all her Australian properties. This can be related to the law of Sale of Land Act 1962 and Transfer of Land Act 1958. Under these acts push Liu forward for selling all her Australian properties (Burton, 2018). On the other hand Transfer of Land Act can help Liu to mitigate all her issues associated with the selling of properties. Thus Liu is bound to follow all the norms under the contract in order to sell all her Australian properties.

4. Issues of legal laws

The issues of legal laws for considering the legal acts are:

Transfer of Land Act 1958 is a process that is applied to maintain the taxation process. As per the 1958 act, Liu had to go through the inspection process before selling the land and shifting to another country (Arnold et al. 2019). By following this process the process of land mitigation and the valuation of the sale price can be regularized.

Sale of Land act 1962  is mentioned about the rules and regulations of selling the property and land before moving to another country. Thus to sell the land Liu needs t to follow the regulations under Section 32. Broker interaction before selling the land is also required and mentioned by the Australian Tax Officer.

5. Succinct application of ITAA 1997

This Act of 1997 was passed by the Parliament of Australia for calculation and computation of land act. Under section 8(1), expenses incurred while selling the land is deducted from the capital gain tax. For the expenditure of management which holds the deduction of tax under section 25(5), the Income Tax Assessment Act of 1997 is applied (Ato.gov.au, 2020). Credit absorption tax is applied on the calculation of capital gain tax when the sale value of the assets is below the percentile of 40%.

6. Detailed analysis of the aspect

CGT in Australia is applied on the value of assets which are actually disposed of or purchased on 20th September 1985. The regulatory bodies of ITAA 1936 and ITAA 1997 are actually implemented for consideration of five instances of Liu’s Compensation value on the capital gain tax (Hidayat, 2018). The usage of noncurrent assets of up to 1 year is applicable of getting a 50% rebate or discount on the payment of tax and superannuation of fund rate of about 33.33%.

Conclusion

From the overall discussion, it can be concluded that the assessable income of Emmi which is calculated from the receipts of the restaurant is under profit. Though she is working as a part-timer the income which is ascertained from the receipts is showing the profitable value for the restaurant. It is concluded from the canalization of capital gain tax, that Liu is bound to follow the rule of regulations for selling the assets. The sale of other assets including the vehicles and the purchase of cars is not subjected to Capital Gain tax. The income ascertained by Emmi is lower as she is working as a part-timer and a full-timer income slab is more than that.

Reference list

Arnold, B.J., Ault, H.J. and Cooper, G. eds., 2019. Comparative income taxation: a structural analysis. Kluwer Law International BV.

Ato.gov.au, 2020. About Australian Taxation Office. Available at  https://www.ato.gov.au/Forms/You-and-your-shares-2019/?page=18[Accessed on 12^th January 2020]

Braithwaite, V. and Reinhart, M., 2019. The Taxpayers’ Charter: Does the Australian Tax Office comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The Australian National University. McBarnet, D., 2019. When compliance is not the solution but the problem: From changes in the law to changes in attitude. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The Australian National University.

Burton, M., 2018. Interpreting the Australian Income Tax Definition of Ordinary Income: Ritual Incantation Or Analysis, When Examined through the Lens of Early Twentieth Century Linguistic Philosophy. JTR, 16, p.2.

Cho, Y., Li, S.M. and Uren, L., 2019. Investment Housing Tax Concessions and Welfare: Evidence from Australia.

Freundenberg, B. and Minas, J., 2018. Reforming Australia’s 50 per cent capital gains tax discount incrementally. JTR, 16, p.317.

Hidayat, A., 2018. A COMPARATIVE ANALYSIS OF CORPORATE TAX GROUP REGIME IN AUSTRALIA, GERMANY, AND INDONESIA. Simposium Nasional Keuangan Negara, 1(1), pp.1209-1231.

Krever, R. and Sadiq, K., 2019. Non-residents and capital gains tax in Australia. Canadian Tax Journal/Revue fiscale canadienne, 67(1).

Kudrna, G., 2016. Australia’s Retirement Income Policy: Means Testing and Taxation of Pensions. CESifo DICE Report, 14(1), pp.3-9.

Legislation.gov.au,2020. About  Income Tax Assessment Act 1936. Available at: https://www.legislation.gov.au/Details/C2017C00242/Html/Volume 1 [Accessed on 12^th January, 2020]

Rawlings, G., 2019. Networks of influence and the management of SME tax compliance in Australia. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The Australian National University.

Unimelb.libguides.com, 2020. About  Australian Taxation Law. Available at http://unimelb.libguides.com/australian_taxation_law/legislation[Accessed on 12^th January 2020]

Williams, G., 2016. The legal assault on Australian democracy. QUT L. Rev., 16, p.19.