Unit 6 Taxation 1 - 1/4/2012 Learning Outcomes Explain the...

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1/4/2012 1 Unit 6 Tax Planning 1 1 Learning Outcomes • Explain the different types of taxes that is relevant for financial planning. • Explain and apply the concepts of – income – deduction – tax offset – medicare levy and surcharge 2 Tax Planning • Financial planning involves taxation advice to minimise tax payable by an income earner • Taxation policy is determined by many socioeconomic and political factors • Financial planners need to understand how tax is calculated 3 Major Taxes Relevant to Financial Planning in Australia • Income Tax – Capital Gains Tax – Applications to individual, company, trusts, superannuation, and estate • Fringe Benefits Tax • Stamp Duty • Goods and Services Tax 4 History • First Levied 1800 • Income Tax introduced 1915 • The Income Tax Assessment Act (Cth) 1936, (ITAA36) • 1983 review of tax system • The Income Tax Assessment Act (Cth) 1997, (ITAA97) • The Henry Review 5 Income Tax • The typical Australian taxpayer pays about a third of gross income in various types of taxes • Financial year end is 30 June • Tax returns are due 31 Oct • Different tax rates apply to different types of income and categories of taxpayer • Tax is collected over time via PAYG 6
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1/4/2012 2 PAYG • The Pay-As-You-Go (PAYG) tax collection system was introduced in January 2000. • PAYG affects individuals, sole traders, companies, partnerships, trusts and superannuation funds, operating businesses, non-profit organisations and government organisations. • Tax collected via PAYG is treated as credit in assessing tax payable after lodging tax return. 7 Personal and Entity Taxation • Income tax in Australia is based on the taxable income received by individuals and entities Australian residents are liable for tax on their worldwide income • Non-residents are liable for their income with an Australian source 8 Personal Income Tax • Personal income tax is assessed according to a progressive tax structure. • On top of marginal tax rates there are – Medicare levy of 1.5% over the entire taxable income. – Medicare surcharge for higher income earners that do not have private hospital cover. – For 2011-2012, flood levy if income > $50,000 9 10 Threshold ($) Marginal Rate 1st Rate 6,001 15% 2nd Rate 37,001 30% 3rd Rate 80,001 37% 4th Rate 180,001 45% Up to 1,500 4% withdrawal rate on income over $30,000 Effective tax free threshold* 16,000 2011-2012 Low Income Tax Offset * Includes the effect of the tax free threshold and the low income tax offset (LITO). An Example • If you have $80 000 in taxable income for the year ending 30 June 2012 , what will your income tax liability be? What will be your average income tax rate? 11
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This note was uploaded on 01/25/2012 for the course FINS 5510 taught by Professor Kingsleyfong during the Three '11 term at University of New South Wales.

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Unit 6 Taxation 1 - 1/4/2012 Learning Outcomes Explain the...

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