INCOME TAX

Income Tax

Income Taxation

Introduction

The most crucial revenue steam amongst the Australian taxation system is the Income tax. In Australia income tax has been imposed on three sources which are personal earning i.e. salary & wages, income from business and lastly the gain made on capital. These three important sources contribute 66% to the revenue of federal government while 57% to the government three tiers.

This paper comprise of two requirements which will cover the section 6.5 that focus on Income according to ordinary concepts (ordinary income)” and other part will discuss the revenue and expense items and taxable income of SEM Pty Ltd's.

Requirement 1:

a) SE Machinery Pty Ltd

SE Machinery Pty Ltd founded in 1981which developed and manufactured Teftoffel which a component used in the manufacture of small engines.

Case Scenario

The case is based on the amount $500,000 which was received by SE Machinery Pty Ltd for the as special order for ten cartons of Teftoffelex which was a new product. Company requested to the customer to make a contribution for the modification of the production system as this was special order. On the agreement of the customer, the amount of $500,000 under the term of the contract was given to the company. The company entered in their accounts as a capital contribution to establishment and construction costs. As this point, being a tax payer it should be known that whether this amount should be a part of under s6-5 or not.

Solution

This case can be put in simple way; tax planning is an understanding of the tax payer's interaction in order to comply with tax law paying lowest potential cost. It is believe, which is usually a mistake made by taxpayer is that planning of tax is optimum once each chances to cut down tax is aimed. The reason for this is that various chances to cut down tax depend on the law strained interpretations. Thus, planning of tax comprises of lots more or less accepting the alternative which originally seems to the outcome of the low costs of tax. It consists of neutrally evaluating and keenly managing risk of tax (Australian Taxation Office, 2012).

As taxable is come is as followed:

Taxable Income = Assessable income - deductions

Assessable income = ordinary income + statutory income (s6-1 ITAA97)

Section 6.5 which is state rules for ordinary income. This further states that which income is part of ordinary income and which is not. Income according to the ordinary income has been expressed as:

As this section only include assessable income according to the ordinary concepts i.e. ordinary income. As far as Australian residents is concerned the assessable income would the ordinary income that came immediately or circuitously from entire sources no matter they are from or inside the Australia in year of income. If a foreign resident then assemble income would be income that came immediately or circuitously from entire sources no matter they are from Australia origins in year of income. The last part of section ...