10 - Lecture 10 Taxation Planning BM Ch 4; TJHM Ch 6; CCH...

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1 Lecture 10 Taxation Planning BM Ch 4; TJHM Ch 6; CCH Ch 1-3; Day et al Ch 10 2 Introduction • Tax planning – an essential part of the overall FP process • Aimed at organising affairs so as to minimise tax liability • May take many forms, e.g., – simple deferral of income – setting up complex structures to hold investments and redistribute assessable income 3 Tax Issues • No moral obligation to pay tax, i.e., minimisation is legal – however, it is illegal to evade tax liability – can be a thin line between minimisation and evasion • Avoidance is where the taxpayer tries to fit strategies through the cracks in tax legislation – while obeying the law, taxpayer looks for ways to use inconsistencies and unique situations to obtain a tax advantage • Tax minimisation should never be the sole reason for an investment decision
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4 The Australian Taxation System • Income tax has been levied by the Australian Government since 1942 • Sources of taxation law: Income Tax Assessment Act 1997 (ITAA 1997) –case law – Australian Taxation Office (ATO) public and private rulings 5 Personal and Entity Taxation • Taxation within Australia is based – on the taxable income received by individuals and entities – the level of taxable profit by businesses – and on certain purchases of individuals, entities and businesses • Australian residents are liable for tax on their worldwide income – non-residents are liable for their income with an Australian source 6 • In January 2000, a new system called Pay-As- You-Go (PAYG) was introduced – replaces 11 different payment and recording systems, including provisional tax, company and superannuation fund instalments, etc. • PAYG affects individuals, sole traders, companies, partnerships, trusts and superannuation funds, operating businesses, non-profit organisations and government organisations Personal and Entity Taxation
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7 1. Taxation of Individuals • All personal services income plus all investment income, less appropriate deductions, tax offsets (rebates and credits) are taxed according to marginal rates of taxation (MRT), plus Medicare levy (1.5%) • Benefits include personal deductions, CGT averaging and use of losses • Negatives include PAYG tax 8 Tax Payments • Individuals face tax levies in two ways: – directly through the taxation of income (earned and unearned) – indirectly through expenditure taxes like the Goods and Services Tax (GST) or when they pay for petrol (petrol excise) 9 Income Tax Computation Income tax = (Taxable income x Tax rate) less Tax offsets Taxable income = assessable income less allowable deductions
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10 Assessable Income • Consists of ordinary income and statutory income (e.g., capital gains, franking credits) derived during the income year • Income is not defined in ITAA 1997 (s.25(1) of ITAA) • Courts have interpreted income to mean “income according to ordinary concepts” 11 Ordinary Concepts of Income • Wages and salaries, commissions, fees and
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This note was uploaded on 12/06/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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10 - Lecture 10 Taxation Planning BM Ch 4; TJHM Ch 6; CCH...

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