Law

Income Tax Payable Calculation

The role and effect of the Commissioner’s Tax Rulings 

The Commissioner’s tax rulings are not law, they are just opinion. His opinions can only show us how the law applies to specified circumstances, binding on the Commissioner. Note that the Commissioner cannot apply the law in any less advantageous way if the ruling is being applied to you, you can also disagree with the ruling.

 Types of rulings include both public and private rulings. Public rulings apply to all taxpayers and are available on the ATO database. Private rulings are at the taxpayers’request but only applies to them and are listed under edited private advice on the ATO database.

What is the relationship between ITAA 1936 and ITAA 1997? 

We have two main Acts because of the tax law improvement (re-write) project (‘TLIP’). As regimes were re-written they were transferred from the ITAA 1936 to the ITAA 1997, TLIP has been abandoned. If the two main Acts have the same idea but use different words, we have to retain the effect of prior court decisions and existing rulings. As in the Reaffirming Acts Interpretation Act 1901 (Cth) s 15AC. The new numbering system is also different which shows the: Division number to Section number.

Working out the amount of income tax payable

The rate of income tax is set by the Income Tax Rates Act 1986 (Cth). In which a taxpayer faces a rating scale and a tax-free threshold ($18,200). Where the maximum individual income tax rate is 45%, plus a 2% Medicare Levy and possible a surcharge.

Corporate entities face flat rates in s 23, at 30% general rate. While the base rate entity (for smaller businesses) is 27.5% in s 23AA. Dividends are taxed at 30%, with no small business discount.

There are different rates that apply for non-resident individuals with no tax-free threshold and the lowest rate is 32.5% in s 7, Pt II. See also the backpackers’ tax rates in s 7, Pt III (resident and source tax s 6-5), in which the farmers case argue for violation of the UK is dis-favorable taxed.

Working out the amount of income tax payable: calculation

 Income tax is imposed on taxable income in ITAA 1997 s 4-10, here the calculation method is: Taxable income = assessable income minus deductions. Assessable income = ordinary income (s 6-5) + statutory income (s 6- 10),

Note also exempt income and non-assessable non-exempt income calculation is: Allowable deductions = general deductions (s 8-1) + specific deductions (s 8-5). Where you work out the taxable (net) income and apply the rate scale = gross tax payable (s 4-10). Gross tax payable minus tax offsets = net tax payable. 

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