WM Lect 8 Wk 9_ Taxation_Jessica

WM Lect 8 Wk 9_ Taxation_Jessica - Wealth Management...

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Wealth Management FINS2643 Lecture 8 Week 9 Taxation Lecture 8 Summary JESSICA YANG 1
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Includes Excludes [1] Assessable Income Wages & salaries, business income, government payments, bonuses/commissions/tips, statutory income, investment income (capital gains, interest, dividends, rent), non-exempt income Exempt income, return of capital, gifts, hobby income [2] (Allowable deductions) - must be connected to income generation Work related expenses, home office, donations & tax prep fees, repairs, interest on loans for income producing assets, capital allowances (depreciation), capital costs part of cost base e.g. initial repairs, replacements), outgoing or loss for personal reasons, private clothing [3] Taxable income x Tax rate (Marginal) Tax due on income [4] Medicare levy 1.5% and surcharge 1% Gross tax liability [5] (Offsets or rebates) Low income, education tax refund, family tax benefit, medical expenses, super co- contribution, franking rebate Net tax liability Remember to deduct PAYG! Useful equations: Franking credit = Franked dividend x (3/7) Motor vehicle: = [(base value)(statutory function)(days used)](Type1/2 Benefit) __________________________ 365 Diminishing value method: Depreciation (per year) = Base x (days/365) x (150%/years of life) Capital gains tax: Disposal price (Cost base) Assessable cap gains (Offsets, cap losses) (Discount – 50% >12 mths) Overall tax liability Indexed cost base = cost base x CP
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JESSICA YANG 3
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Taxation of other structures Company tax o 30% Partnership o Does not pay tax o Partners pay personal income tax o Must file tax return Trust o Includes managed funds o Must lodge tax return o Do not pay tax on income distributed o Losses cannot be distributed, only deducted from future trust income Super fund o 15% upfront tax on contributions o 15% tax on income o 10% tax on long term cap gains o 33.3% discount on CGT Tax on Financial securities (shares, fixed interest) o Depends on asset class Dividend Imputation Example:
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Shareholder receives a $70 fully franked dividend. Find: 1. Franked dividends grossed up and added to taxable income of the recipient? 2. Franking credit claimable by shareholder depending on tax bracket? Answer 1. Franked dividend grossed up = Franked dividend (1 – 0.3) = $70 (0.7) = $100 (Company earning before tax) 2. Franking credit = Franked dividend grossed up x (0.3) = Possible refund of $30 (Company tax paid) depending on shareholder’s personal tax bracket 3. Shortcut: Franking credit = Franked dividend x (0.3) (1 – 0.3) = Franked dividend x (3/7) In the reverse: o Company tax = $100 x 30% = $30 o Franked dividend = $100 - $30 = $70 Salary packaging Can include fringe benefits e.g. cars, living away from home, work travel Fringe benefits Tax (FBT) is levied on the employer at the highest marginal tax rate (46.5%) who recovers the FBT cost from the employee
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This note was uploaded on 04/02/2012 for the course FINS 2643 taught by Professor Fong during the Three '10 term at University of New South Wales.

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WM Lect 8 Wk 9_ Taxation_Jessica - Wealth Management...

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